If the government uses its stabilization policies to maintain full employment under conditions of cost-push inflation inflationary spiral is likely to occur.
As the general price level rises, each unit of currency may buy fewer goods and services, hence inflation is related to a reduction in the purchasing power of money.
The opposite of inflation is deflation, which is a persistent rise in the overall level of prices for goods and services. The most common measure of inflation is the annualized percentage change in a general price index, sometimes known as the inflation rate.
Because price rises are not constant across the board, the consumer price index (CPI) is widely used for this purpose. The employment cost index is also used to determine wages in the US.
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