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Once we have monthly data on a price index we can evaluate the inflation. In most nations, the percentage change in price index during one month is small. Hence it is more common to calculate inflation each month based on a complete year. For instance, on 1 January 2010, inflation is calculated as percentage change in the price index between 1 January 2010 and 1 January 2010. On 1 February 2010, inflation is evaluated as the percentage change in price index between 1 February 2010 and 1 February 2010 and so on. Figure belowillustrates Germany as an instance.
Figure
Inflation in Germany 1992 - 2010. Source: OECD.
Write a one paragraph summary and three paragraphs that take the information in the article and relate it specifically to the circular flow model and the supply and demand curves.
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