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Inflation is a general increase in the price level of goods and services in an economy over a period of time, usually measured as an annual percentage increase. Inflation occurs when the supply of money in circulation increases faster than the supply of goods and services available in the economy.

Inflation can have both positive and negative effects on an economy. A moderate level of inflation can encourage spending and investment, as people are more likely to make purchases if they believe prices will rise in the future. However, high inflation can lead to a decrease in purchasing power, as the value of money decreases and prices rise rapidly. This can lead to economic instability and social unrest.