Definition of Inflation

Inflation means a sustained increase in the aggregate or general price level in an economy.

“inflation means that your money won’t buy as much today as you could  yesterday. ”

In the UK the rate of inflation has varied a lot  from 25% a year  in 1974 to deflation in the 1920s and 1930s.

Deflation is a fall in the price level of the economy.

 

Purchasing Power

If we have inflation then £100 is going to buy less in the future

Purchasing power of the pound  (1920=100)

1920

1930

1940

1950

1960

1970

1980

1990

1998

100

125

129

98

66

46

133

6.8

5.33

 
This table shows us that £100 buys less goods in 1998 than 1920,( approx 78% of its value)

The real value of money is the amount of goods it can buy
If you had a fixed income of £100 then the nominal value remains unchanged but the real value has fallen by  95 % in the last 78 years.

 

Hyper Inflation

hyper inflation  is greater than 1000%. With hyper inflation money loses its value so rapidly that nobody wants to use it as a medium of exchange

In 1920s Germany had inflation of 100 billion %
In 1946 Hungary had inflation of 42,000 billion per cent

 

Essays and Revision Notes on Inflation

Definition - Inflation

Causes Inflation

Costs of Inflation

Monetarist Theory

Criticisms of Monetarism

Measuring Inflation

Problems Measuring Inflation

Money Supply

Hyperinflation - Causes and Costs

Inflation Essays