Inflation occurs when the value of money begins to fall, thereby decreasing purchasing power. There are a number of ways to measure inflation, and inflation is different from currency devaluation.
When inflation rises, less money is invested, as people use their savings to compensate for the increase in price. Interest rates rises as the value of money goes down. Unemployment rate is low.
Excessive inflation, though, can be as problematic as the deflation process. The larger the system gets, the more imaginary profits are created. This creates a kind of bubble around a particular market. Thrifty spending is discouraged, debt is encouraged, and when the bubble finally bursts, huge amount of money invested is lost.
In conlcusion, deflation and high inflation bring more problems to the economy, hence low inflation is usually desired. Inflation is considered good for the economy when its rate is quite low.
When inflation rises, less money is invested, as people use their savings to compensate for the increase in price. Interest rates rises as the value of money goes down. Unemployment rate is low.
Excessive inflation, though, can be as problematic as the deflation process. The larger the system gets, the more imaginary profits are created. This creates a kind of bubble around a particular market. Thrifty spending is discouraged, debt is encouraged, and when the bubble finally bursts, huge amount of money invested is lost.
In conlcusion, deflation and high inflation bring more problems to the economy, hence low inflation is usually desired. Inflation is considered good for the economy when its rate is quite low.