There's no easy answer here. Think of a business that has more CUSTOMERS than it can handle and, therefore, is doing quite well. The owners of this business are likely to raise the prices they charge their customers. In this way, economic activity can, in general, lead to a TEMPORARY rise in the level of prices. Such a rise is temporary because high prices attract other firms to COMPETE with the business owner. Also, every business owner's interest in high profits puts an emphasis on increasing productivity, and that can put downward pressure on prices.

Often, when economists talk about inflation, they are referring to a sustained rise in prices that is "too high" or "too fast." Although economists may not AGREE on precise definitions for these terms, they describe the basic problem: too many dollars chasing too few goods.

There's no easy answer here. Think of a business that has more customers than it can handle and, therefore, is doing quite well. The owners of this business are likely to raise the prices they charge their customers. In this way, economic activity can, in general, lead to a temporary rise in the level of prices. Such a rise is temporary because high prices attract other firms to compete with the business owner. Also, every business owner's interest in high profits puts an emphasis on increasing productivity, and that can put downward pressure on prices.

Often, when economists talk about inflation, they are referring to a sustained rise in prices that is "too high" or "too fast." Although economists may not agree on precise definitions for these terms, they describe the basic problem: too many dollars chasing too few goods.