Inflation impacts the before- and after-tax analysis. In performing analysis, it is important to understand how inflation impacts the world economies. When inflation occurs, we are able not able to buy as much and our future dollars hold less value than our future dollars. Inflation impacts all of us. In this activity, we will discuss the impact of inflation and how it occurs.
1. In your own words, respond to the following questions. Cite sources for your responses if necessary.
o Define inflation in terms of the purchasing power of dollars.
o Define and describe the relationship between actual and real dollars and inflation.
o Discuss how inflation happens. Describe a few circumstances that cause prices in the economy to increase.