Principles of Microeconomics, 7th Edition

Published by South-Western College
ISBN 10: 128516590X
ISBN 13: 978-1-28516-590-5

Chapter 1 - Part I - Ten Principles of Economics - Questions for Review: 9

Answer

Inflation is the increase in the overall level of prices in the economy. It is often caused by increasing the quantity of money in an economy.

Work Step by Step

As the central bank increases the quantity of available money in the economy, this causes the value of that money to decrease. As the value of money decreases, this causes the overall level of prices in the economy to increase relative to the lower value of money.
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