Price stability

Inflation, deflation, disinflation

• inflation — a sustained rise in the general price level (money's purchasing power falls).
• deflation — a sustained fall in the price level.
• disinflation — inflation still positive but slowing (prices rise more slowly).
• Measured by the consumer price index (CPI) — a weighted "basket" of goods.

Causes

• demand-pull — AD rises faster than AS ("too much money chasing too few goods").
• cost-push — firms' costs rise (wages, materials), shifting SRAS left.

Consequences

• inflation cuts purchasing power (worst for fixed incomes), creates uncertainty, makes exports dearer, helps borrowers but harms savers.
• deflation can be harmful too: people delay buying → AD falls → output and jobs fall.

You've got it