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When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the [[purchasing power]] per unit of money{{snd}}a loss of [[real versus nominal value (economics)|real value]] in the medium of exchange and unit of account within the economy.<ref>[http://www.sedlabanki.is/?PageID=195 Why price stability?] {{webarchive|url=https://web.archive.org/web/20081014031836/http://www.sedlabanki.is/?PageID=195 |date=October 14, 2008 }}, Central Bank of Iceland, Accessed on September 11, 2008.</ref><ref>Paul H. Walgenbach, Norman E. Dittrich and Ernest I. Hanson, (1973), Financial Accounting, New York: Harcourt Brace Javonovich, Inc. Page 429. "The Measuring Unit principle: The unit of measure in accounting shall be the base money unit of the most relevant currency. This principle also assumes that the unit of measure is stable; that is, changes in its general purchasing power are not considered sufficiently important to require adjustments to the basic financial statements."</ref> The opposite of inflation is [[deflation]], a sustained decrease in the general price level of goods and services. The common measure of inflation is the '''inflation rate''', the annualised percentage change in a general [[price index]], usually the [[consumer price index]], over time.<ref name="Mankiw 2002 22–32">{{Harvnb|Mankiw|2002|pp=22–32}}</ref>
Economists believe that very high rates of inflation, also known as [[hyperinflation]], are harmful and are caused by an excessive growth of the [[money supply]].<ref>Robert Barro and Vittorio Grilli (1994), ''European Macroeconomics'', Ch. 8, p. 139, Fig. 8.1. Macmillan, {{ISBN|0-333-57764-7}}.</ref> Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in [[real versus nominal value (economics)|real]] [[demand]] for goods and services
Inflation affects economies in various positive and negative ways. The negative effects of inflation include an increase in the [[opportunity cost]] of holding money, uncertainty over future inflation which may discourage investment and savings, and if inflation were rapid enough, shortages of [[good (economics)|goods]] as consumers begin [[Hoarding (economics)|hoarding]] out of concern that prices will increase in the future. Positive effects include reducing [[unemployment]] due to [[nominal rigidity|nominal wage rigidity]],<ref>{{Harvnb|Mankiw|2002|pp=238–255}}</ref> allowing the central bank greater freedom in carrying out [[monetary policy]], encouraging loans and investment instead of money hoarding, and avoiding the inefficiencies associated with deflation.
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