Answer to Question #135303 in Macroeconomics for Thilivhali

Question

3.5. Define the term inflation and indicate the index that is used to measure the rate of inflation.

Answer 1

Inflation is simply a quantitative measure of rate at which average price level of a basket of selected goods and services in an economy increase over a certain period of time. Its often expressed as a percentage thus shows a decrease in purchasing power of a said nation's currency. Its the opposite of deflation.

Consumer price index is used to measure average change of price over a given period of time in which consumer pay for a basket of goods and services. This is widely used to measure inflation.