Economics Fundamentals — Why the same dollar buys less over time.
Inflation is a general rise in prices over time. It means each unit of money buys a little less than it used to.
CPI: Consumer Price Index: tracks the price of a basket of common goods and services, a standard gauge of inflation.
Real vs nominal: Nominal is the face value in dollars. Real is adjusted for inflation to show true purchasing power.
If your savings earn 3 percent while inflation is 5 percent, your real return is about negative 2 percent. Your money grew, but it buys less.
Owning productive assets like stocks or real estate can help offset inflation, since their value and income can rise with prices.
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