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Fundamentally, inflation is the rising in prices of goods that are bought and sold. Inflation of a national currency is caused by an increase in volume of a nation's monetary supply without an in demand for that currency. Inflation has both positive and negative consequences. Because inflation (or its rate thereof) directly impacts the exchange rate of a given currency against other currencies around the world, goods produced within countries with favorable rates of inflation (in comparison to other currencies) are more competitive on the global market. China has been accused of utilizing this strategy to make its goods more competitive around the world.
Inflation is the rising of the costs of general goods and services. Deflation is the opposite of this (lowering of the costs of goods and services).
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