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Inflation
June 06 , 2012

A fairly common term, inflation is best defined by its effect– the rise in prices of goods and services that we experience. Very broadly, the price of goods and services are determined by the money supply in the economy, and the availability of these goods and services. Thus, anything that increases money supply or decreases quantity of goods and services produced, contributes to inflation.

While nearly everyone agrees that high inflation is bad, economists often come to blows when it comes to agreeing on its causes and how to deal with it. Suffice it to say here, that inflation can be supply side– when something like monsoon failure reduces production of agriculture and some other sectors. Or it can be demand side, when salary raises happen too fast and contribute to a lot of money chasing the same goods and services.

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