Look through the following text and fill in the gaps with the words given below

Summarize the information of the text and render its essentials.

Answer the questions.

1. Why do we say that the effect of inflation is not distributed evenly?

2. How harmful is high inflation to an overall economy?

3. How does the purchasing power of different social layers change?

4. How does the ‘wage spiral’ work in the inflationary period?

5. In what way can the inflation be speedy and unpredictable?

6. How do banks control the money supply?

7. Why do borrowers with a fixed nominal rate of interest appear to be in profitable situation?

Because inflation is a rise in the general..(1).. of prices, it is intrinsically linked to money, as captured by the often heard refrain "Inflation is too..(2).. dollars chasing too few goods". To understand how this works,..(3).. a world that only has two commodities: Oranges picked from..(4).. trees, and paper money printed by the government. In a year where there is a drought and oranges are …(5).., we'd expect to see the price of oranges..(6).., as there will be quite a few dollars chasing very few oranges. Conversely,..(7).. there's a record crop or oranges, we'd expect to see the price of oranges..(8).., as orange sellers will need to reduce their prices..(9).. clear their inventory. These scenarios are..(10).. and deflation, respectively, though in the real world inflation and deflation are changes in the..(11).. price of all goods and services, not just one.

We can also have inflation and deflation..(12).. changing the amount of money in the system. If the government decides..(13).. a lot of money, then dollars will become..(14).. relative to oranges, just as in our drought situation. Thus inflation is..(15).. by the amount of dollars rising relative to the amount of oranges (goods and services), and deflation is caused by the amount of dollars falling relative to the amount of oranges.

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