Most people associate inflation with price increases on spesific goods and services. We must be careful to distinguish the phenomenon of inflation from price increases for spesific goods. Inflation is an increase in the average level of prices, not a change in any spesific price.
In almost every presidental campaign candidates call inflation a bad thing and vow to control it once elected. The rising cost of groceries, clothes and everything else is a main topic of conversation among consumers. Business firms realize that higher prices for materials, labour, eqipment, and other things they buy reduce business profits unless they are successful in passing these higher costs on to the consumer in the form of higher consumer prices. A stated national goal of government economic policy is to stabilize the price level. All groups comprising the population - consumers, unions, business firms, and government - are concerned about inflation.
We first determine the average price of all output - the average price level - then look for changes in that average. A rise in the average price level is referred to as inflation.
The average price level may fall as well as rise. A decline in average prices - a deflation - occurs when price decreases on some goods and services ouweigh price increases on all others.…
