Learn how inflation works
Short, plain-English explainers behind the simulator. Each one leads with the idea in a sentence, then the mechanism.
What Causes Inflation?
Inflation is a sustained rise in the general price level. It comes from demand outrunning supply, cost shocks, money growth, and self-fulfilling expectations. A plain-English explainer.
What Is the Phillips Curve?
The Phillips curve links inflation to economic slack and expectations: inflation = expected inflation + a slope times the output gap + supply shocks. There is no permanent inflation–unemployment trade-off.
What Is the Taylor Rule?
The Taylor rule is a formula for setting the central-bank interest rate: raise rates more than one-for-one with inflation. It is the standard benchmark for monetary policy.
What Is Central Bank Credibility?
Credibility is whether people believe the central bank will keep inflation near its target. When it is high, expectations stay anchored and shocks fade; when it is lost, inflation lingers and disinflation gets costly.
Demand-Pull vs Cost-Push Inflation
Demand-pull inflation comes from too much spending chasing too few goods; cost-push inflation comes from rising production costs. They look similar in prices but call for opposite policy responses.
Why Hyperinflation Happens
Hyperinflation is not just high inflation. It happens when a government finances persistent deficits by printing money and the public loses all faith in the currency, so prices and expectations spiral together.
How Interest Rates Reduce Inflation
Central banks fight inflation by raising interest rates, which lifts the real cost of borrowing, cools demand and the job market, and brings price growth down, with a lag and a cost.
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