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Inflation (i) (Measuring inflation (Base rate starts as 100, If there is…
Inflation (i)
Measuring inflation
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If there is deflation, CPI will be below 100
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Types of inflation
Disinflation
Where there is inflation, but the rate is lower than the previous rate of inflation
Deflation
When the rate of inflation is negative, price of average basket of goods decrease
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Limitations of CPI
Mortgages are excluded from the average basket of goods, but they are common in many households
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Growth of money supply
As supply of money increases, inflation rises
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