Page 1: Understanding Inflation and Its Fundamentals

This page introduces the concept of inflation and its various aspects. Inflation represents a persistent tendency for prices to rise across an economy, with the government targeting a 2% rate as optimal.

Definition: Inflation occurs when there is a general increase in price levels across an economy, while deflation represents a situation where average prices fall over time.

Example: Zimbabwe experienced hyperinflation in May 2007, reaching 22,007%, demonstrating the severe consequences of uncontrolled inflation.

Highlight: Cost push inflation results from rising wages, labor costs, tax increases, and import costs, while demand pull inflation occurs when general demand outpaces supply.

Vocabulary: Money supply refers to the total amount of money circulating in an economy, with imbalances potentially leading to inflation.

The page details various effects of inflation, including increased costs across multiple sectors, reduced purchasing power, and impacts on borrowing and lending activities.