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Basic Economics: Inflation

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Part 2: A Bigger Scale

Now, inflation affects everybody in a way. Inflation also affects things like businesses and governments, basically everybody who has to buy and sell things.

Businesses that depend on income in order to buy goods can be hurt by inflation. The same is true of governments, which need taxes from their citizens to pay for services that benefit those citizens.

Governments usually keep track of how much inflation rises, and this is usually done with percentage. You might hear someone say that the inflation rate is 10 percent. This means that the price of something is now 10 percent higher than it was a year ago. Going back to our candy bar example, the price of that candy bar has risen 10 percent, or 50 + 5. (50 is what it cost originally, and 5 is how much it went up. Remember that percentage is based on a scale of 100.)

So, next time you hear people talking about inflation, you'll know that they're talking about price and how much you can get for your money.

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