Financial Terms / inflation

Understanding Inflation: Effects & Causes

Inflation affects the buying power of a currency by increasing the cost of goods and services.

What is Inflation?

Inflation is an increase in the overall prices of goods and services in an economy over a period of time. It is usually measured using the Consumer Price Index (CPI) or Producer Price Index (PPI).

How does the Federal Reserve fight Inflation?

The Federal Reserve has implemented a strategy that involves increasing interest rates and reducing the money supply in order to reduce inflation. This strategy is known as "breaking the Great Inflation".

What has the IRS done to adjust for Inflation?

The IRS has increased the taxable income thresholds in seven tax brackets in 2018 and will continue to do so in 2023. This is done to adjust for inflation and ensure that taxpayers don't pay taxes on income that has been inflated due to inflation.

Key Points

Measured Differently
Inflation is measured in different ways. Depending on the country and the situation, it can be measured using the Consumer Price Index (CPI), the Producer Price Index (PPI), or other methods.
Economic Impact
Inflation has an economic impact. It alters the purchasing power of a currency, increases the cost of living, and can affect the value of investments.

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