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What Is Inflation

Inflation is defined as a sustained increase in the general level of prices for goods and services, measured as an annual percentage. There are different types of inflation including deflation, hyperinflation, and stagflation. The main causes of inflation are demand-pull, when there is too much money chasing too few goods, and cost-push, when companies' costs increase so they raise prices to maintain profits. Unanticipated inflation can cause problems like making domestic products less competitive internationally and reducing purchasing power for those on fixed incomes. Monetary policy uses tools like interest rates, reserve requirements, and open market operations to control the money supply and thereby influence inflation.

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500 views4 pages

What Is Inflation

Inflation is defined as a sustained increase in the general level of prices for goods and services, measured as an annual percentage. There are different types of inflation including deflation, hyperinflation, and stagflation. The main causes of inflation are demand-pull, when there is too much money chasing too few goods, and cost-push, when companies' costs increase so they raise prices to maintain profits. Unanticipated inflation can cause problems like making domestic products less competitive internationally and reducing purchasing power for those on fixed incomes. Monetary policy uses tools like interest rates, reserve requirements, and open market operations to control the money supply and thereby influence inflation.

Uploaded by

umer_khan_8132
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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What is inflation?

INFLATION IS DEFINED AS A SUSTAINED OR PERSISTANT INCREASE IN GENERAL LEVEL OF PRICES FOR GOODS
AND SERVICES.
IT IS MEASURED AS AN ANNUAL PERCENTAGE INCREASE .

THERE ARE SEVERAL VARIATIONS ON INFLATION.

DEFLATION:IS WHEN THE GENERAL LEVEL OF PRICES IS FALLING.THIS IS THE OPPOSITE OF INFLATION.

HYPERINFLATION:IS UNUSUALLY RAPID INFLATION.IN EXTREME CASES ,THIS CAN LEAD TO THE
BREAKDOWN OF A NATION’S MONETARY SYSTEM.
STAGFLATION:IS THE COMBINATION OF HIGH UNEMPLOYMENT AND ECONOMIC STAGNATION WITH
INFLATION.

CAUSES OF INFLATION:
ECONOMISTS WAKE UP IN THE MORNING HOPING FOR A CHANCE TO DEBATE THE CAUSES OF
INFLATION.THERE IS NO ONE CAUSE THAT ‘S UNIVERSALLY AGREED UPON,BUT ATLEAST TWO THEORIES ARE
GENERALLY ACCEPTED.

• DEMAND-PULL INFLATION
• COST –PUSH INFLATION
 DEMAND-PUSH INFLATION
THIS THEORY CAN BE SUMMERIZED AS:”TOO MUCH MONEY CHASING TOO FEW GOODS.”
 COST-PUSH INFLATION
WHEN COMPANIES COSTS GO UP,THEY NEED TO INCREASE PRISES TO MAINTAIN THEIR PROFITS
MARGINS.
COST OF INFLATION:
ALMOST EVERYONE THINKS INFLATION IS EVIL,BUT IT IS NOT NECESSARY SO…….

PROBLEMS ARISES WHEN THERE IS UNANTICIPATED INFLATION.


• IF THE INFLATION RATE IS GREATER THAN THAT OF OTHER COUNTRIES,DOMESTIC PRODUCTS
BECOME LESS COMPETITIVE.
• THE ENTIRE ECONOMY MUST ABSORB REPRICING COSTS (MENU COSTS) AS PRICE LISTS ,
LABELS,MENUS,AND MORE HAVE TO BE UPDATED.
• PEOPLE LIVING OFF A FIXED-INCOME SUCH AS RETIRES,SEE A DECLINE IN THEIR PURCHASING
POWER AND CONSEQUENTLY THEIR STANDARD OF LIVING.

FINALLY , INFLATION IS A SIGN FOR ECONOMY IS GROWING…….

INFLATION AND OUR MONETARY SYSTEM:


HOW DOES MONETARY POLICY WORK?
IT IS A POLICY WHICH IS ADOPTED BY CENTRAL BANK OF A COUNTRY TO CONTROLTHE SUPPLY OF
MONEY.
TOOLS OF MONETARY POLICY:
THESE ARE CLASSIFIED AS
• QUANTITATIVE METHODS
• QUALITATIVE METHODS
 QUANTITATIVE METHODS:
o CHANGES IN BANK RATE POLICY
o OPEN MARKET OPERATION
o CHANGES IN RESERVE RATIO REQUIREMENTS
o CHANGES IN RERSERVE CAPITAL
o CHANGES IN MARGINAL REQUIREMENTS
o RATIONING OF CREDITS
 QUALITATIVE METHODS:
o MORAL SUATION
o CONSUMERS CREDITS CONTROL
o DIRECT ACTION
o PUBLICITY
IMPACT OF INFLATION ON OUR LIVES AND SOCIETY:
 POSITIVE IMPACT
 NEGATIVE IMPACT
ROLE OF GOVERNMENT TO ELIMINATE OR
ENHANCE INFLATION:
STRICT MONETARY POLICY
OTHER PRECAUTIONARY MEASURES
DECLINE OF OUR STANDARD OF LIVES DUE TO
INFLATION:
INCREASE OF POVERTY…….
REMEDIES TO CONTROL INFLATION:

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