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Inflation means continuous increases in the price level. High inflation rates cause loss of purchasing power for consumers and workers, misalignment of prices of different products, speculative behavior on behalf of consumers and businesses, and a distortion in allocation of resources. One of the goals in any economy is maintaining a degree of price stability. Although zero inflation rate may not be necessarily desirable or attainable, attempting to keep the inflation rate low is essential for the health of an economy. In this section of the course the definition of inflation, measures of inflation, causes of inflation, and consequences of high inflation rates are discussed. The potential trade-offs between price stability and low unemployment rates are also explored.

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