Inflation Tutorial by Investopedia. Generally, This Article Essay

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Inflation Tutorial" by Investopedia. Generally, this article seeks to give a concise and clear definition of inflation while highlighting how the measurement of the same takes place and how it impacts upon interest rates and investments. In Investopedia's opinion, "inflation is defined as a sustained increase in the general level of prices for goods and services" (2). Hence an increase in the rate of inflation makes money gradually lose its purchasing power. It is important to note that over time, a number of theories and explanations have been put forward in an attempt to highlight the causes of inflation. These theories include demand-pull inflation and the cost-pull inflation theories (Investopedia 2). When it comes to the measurement of inflation, the same is basically measured in terms of annual percentage increases. In most cases, inflationary rates are regulated through the variation of interest rates. In regard to investments, it can be noted that the impact inflation has on the same is essentially dictated upon by the actual kind of investment under consideration.

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As Investopedia notes, amongst those affected most by inflation include fixed-income investors (5).

Part 2: Causes and Effects of Inflation

One of the causes of inflation according to Gillespie is "too much demand in the economy" (381). In this case, a sustained growth in demand of goods and services at a faster rate than supply eventually pushes the prices of such goods and services up. This in Gillespie's own words brings about a "demand-pull inflation" (381). The reasoning here is that firms increase the prices of goods and services when they cannot meet the demand in the marketplace. In basic terms, long queues and waiting lists, low stock levels as well as shortages characterize demand-pull inflation. Secondly, inflation according to Macdonald can also be brought about by sustained cost increases. In Macdonald's own words, "this type of inflation is referred to as cost-push or supply-side inflation"….....

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