This video will explain what inflation is and why inflation is bad for the economy.

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Inflation is a term used to describe the increase in the general price level of goods and services in an economy over a period of time. This means that the cost of living goes up and the purchasing power of money decreases. Inflation is measured by the Consumer Price Index (CPI) which tracks the average price of a basket of goods and services.

While moderate inflation (around 2%) is considered healthy for an economy, high inflation can be disastrous. Here are some reasons why:

1. Reduced purchasing power: As inflation increases, the value of money decreases, meaning people can buy fewer goods and services. This can lead to a decrease in the standard of living as people struggle to afford basic necessities.

2. Reduced investment: High inflation can discourage businesses from investing in an economy. This is because it makes it difficult for them to predict their costs and revenue, which reduces their confidence in the market.

3. Income disparity: Inflation can lead to a widening income gap between different socioeconomic groups. This is because those with lower incomes tend to spend a greater proportion of their income on basic necessities such as food and housing, which experience the highest levels of inflation.

4. Lower savings: As inflation increases, the value of savings decreases. This can discourage people from saving, as they feel that their money is losing value over time. This can lead to a decrease in the economy’s overall savings rate, which can affect long-term investments and future economic growth.

5. Reduced international competitiveness: High inflation can make exports more expensive, reducing a country’s competitiveness in the global market.

In conclusion, while some level of inflation is normal and even necessary for a healthy economy, high inflation can have negative consequences on individuals, businesses, and the economy as a whole. It is important for governments to monitor inflation levels and take appropriate action to maintain a stable economic environment.