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What is inflation?             Is there only one measurement?                       &nbs

What is inflation?

            Is there only one measurement?

                        How is the CPI computed?

                                    Who computes it?

            *What effect does it have on an economy?

                        Income effects

                        Wealth effects

            How does inflation alter the rate and mix of output?

            Is it a sound economic goal to have a 0% inflation rate?

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Answer #1

Inflation refers to the increase in the general price level of an economy over a period of time.

It is measured by two major indices: Consumer Price Index and Producers Price Index

CPI is computed using the formula = (Cost of basket of goods in current period / Cost of basket of goods in base period ) * 100.

CPI is computed by Bureau of Labor Statistics (BLS) in USA.

Income effect: An increase in the inflation leads to a decrease in the purchasing power of the consumers / households thereby eroding the value of money in the economy.  

Wealth effect: leads to a change in the spending due to increase in the perceived wealth.

Kindly up vote my answer.

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