## The meaning and measurement of inflation

Syllabus: The meaning of inflation, disinflation and deflation

Syllabus: Distinguish between inflation, disinflation and deflation.

Inflation

Inflation is a persistent and continuous increase in the general level of prices NB A one off increase in the general level of prices is not inflation.

Disinflation is not the same as deflation. Disinflation is when the inflation rate decreases. eg if prices are rising at 10% and then the rate of increase of prices falls to 8% (prices are still rising but by a decreased rate) this is disinflation.

Deflation is when the general level of prices are decreasing (falling)

### What the data says

Identify the main inflation measure in Brazil by accessing the World Bank Catalogue though this link.

• Choose the World Development Data set
• Click on Indicators
• Type the term 'inflation' into the search engine.
• Save the inflation data in a spreadsheet
• plot the data over a 20 year period using a graph

1. Describe the data you have plotted focusing on short term patterns, long term trends, and relationships between variables.

Repeat the exercise for two other countries from different continents.

1. Identify similarities and differences between the three sets of inflation data.
2. Analyse the factors that might account for the similarities and differences you have identified. (You may want to revisit this answer once you have completed this section).
Also you can look at Brasilinforme distributed weekly to keep up to date

Essay Question

May 2008

2. (a) “The effect of a decrease in aggregate demand on output and the price level depends on the shape of the aggregate supply curve.” Explain this statement. [10 marks]

(b) Evaluate the likely effects of a falling rate of inflation on the performance of an economy. [15 marks]