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What is the relationship between interest rates, inflation, and exchange rates in an economy?

Inflation is a rise in the general price level of goods and services. Typically, over time, the nominal cost of goods and services goes up, and purchasing power (how much you can buy per dollar) goes down. Everyone hears about how their grandfather could go to the movies for ten cents back in the day (5-cent cinema was a Nickelodeon), or how their grandfather's first job as a machinist paid him 50 cents an hour.