9.  What is inflation?

Inflation means that the general level of prices of goods and services is increasing. When inflation is rapid, the prices of goods and services can increase faster than consumers’ income, and that means the amount of goods and services consumers are able to purchase goes down. In other words, the purchasing power of money has declined. With inflation, a dollar buys less and less over time.

The FOMC tries to keep inflation low and stable in the long run because that helps the economy to keep growing over long periods of time. When inflation is low and stable, businesses and households can make better spending and investment plans because they do not have to worry about high inflation decreasing the purchasing power of their money.