Definition : a persistent rise in the general level of prices.

1. Inflation • Definition : a persistent rise in the general level of prices. • Inflation is caused by the interaction of the supply of money with output and interest rates. Stable prices

2. Stable prices • High rates of inflation can cause a great deal of damage to an economy and its people. • Buyers hate the prices increase, but sometimes it’s necessary for the sellers. • The Problem is that the inflation of the prices often doesn’t come with the inflation on the salaries, that’s why some groups of the society have difficulty. • Periods of unemployment often comes with a low inflation rate, but there are some exceptions, like the 1950s where both unemployment and inflation increased.

3. Why it's difficult • Many economists believe that attaining both low employment and low inflation rates concurrently is virtually impossible in a modern economy. • Two goals are in conflict and that one of these goals can be achieved only at the expense of the other. • Low levels of unemployment  high levels of inflation • High unemployment  low inflation • A cursory glance at the two curves are created but there is not an obvious relationship of this nature, except for the mid 1960s where they seemed to move in opposite directions.

4. We think that the inflation rate is in relation with the percentage of unemployment. • When there’s unemployment, people are not likely to buy a lot of goods and services. • So in relation, the sellers have to decrease there prices, because there is less money out there. Sellers decrease their prices, because they want people to buy even if there is less money. • With low level of unemployment it’s the opposite.

5. Stables prices • The economy of a country should focus on keeping the prices at the same level, with a low level of inflation year by year. • To do that, the society have to keep the same percentage of unemployment year by year. • It’s hard, because we never know what can happen in a year. • Example : A company closes 5 manufactures so 3000 people are now unemployed, so the inflation will decrease.

6. More... • Deflation: which is a falling general level of prices • Disinflation: which is the reduction of the rate of inflation • Hyper-inflation: which is an out of control inflationary spiral • Reflation: which is an attempt to raise prices to counter act deflationary pressures.

7. Keynesian Theory • Keynesian economic theory proposes that money is transparent to real forces in the economy, and that visible inflation is the result of pressures in the economy expressing themselves in prices. • Like we said earlier, workers trying to keep their wages up with prices and then employers passing higher costs on to consumers as higher prices as part of a "vicious circle." • Keynesians emphasize reducing demand in general, often through fiscal policy, using increased taxation or reduced government spending to reduce demand as well as by using monetary policy.

8. Monetarism • Monetarists assert that empirical study of monetary history shows that "inflation is always and everywhere a monetary phenomenon“ • Monetarists emphasize increasing interest rates (reducing the money supply, monetary policy) to fight inflation.

9. Stopping inflation • Central Banks are trying to stop inflation with their power on the interest rates and through other operations. • High interest rates and slow growth of the money supply are two traditional way, for them to stop inflation. • Another method is only to institute wage and price controls (income policies).

10. Finally • The Bank of Canada aims to keep inflation at the 2 per cent target, the midpoint of the 1 to 3 per cent inflation-control target range • Inflation calculator : The Inflation Calculator uses monthly consumer price index data from 1914 to the present to show changes in the cost of a fixed "basket" of consumer purchases. • http://www.bankofcanada.ca/en/rates/inflation_calc.html • http://www.bankofcanada.ca/en/rates/indinf.html