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Economics is the study of how societies allocate scarce resources to satisfy unlimited wants and needs. It encompasses a broad range of topics, including production, consumption, distribution, and the behavior of individuals, businesses, and governments in the economy.
concepts in economics include supply and demand, opportunity cost, inflation etc.
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Inflation refers to the sustained increase in the general price level of goods and services in an economy over a period of time. It essentially means that the purchasing power of money is decreasing, as each unit of currency buys fewer goods and services.Causes of Inflation:
1.Demand-Pull Inflation: This occurs when aggregate demand in an economy exceeds aggregate supply, leading to upward pressure on prices.2.Cost-Push Inflation: When the cost of production increases (e.g., due to higher wages or raw material prices), producers may pass these costs on to consumers, causing inflation.
3. Built-In Inflation: This is also known as wage-price inflation, where expectations of future inflation lead workers to demand higher wages, which in turn leads businesses to raise prices.
Measures of Inflation:
Consumer Price Index (CPI): Measures the change in prices of a basket of goods and services typically purchased by households.Producer Price Index (PPI): Tracks changes in the prices received by producers for their output.
GDP Deflator: Reflects the price changes in all goods and services produced domestically.
Governments and central banks closely monitor inflation and often implement policies like monetary tightening (raising interest rates) or fiscal measures (taxation or spending policies) to manage its effects on the economy.
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