INFLATIONInflation - is the rate of upward movement in the price level for an aggregate of goods and services - sustained increased in general price level.- too much money chasing too few goods.
1. MODERATE OR MILD INFLATION- this is an inflation of about 3% or less is acceptable as it acts as a stimulus to investment, an element of growth.2. CREEPING INFLATION-It arisies slowly but continuosly. This kind of inflation is commonly in developing countries.3. STAGFLATION- this refers to an economy that is both stagnant and has inflation. It means there is inflation without economic growth.
TYPES OF INFLATIONA. DEMAND-PULL INFLATION- excess of aggregate demand for goods and services over aggregate supply or the maximum available outpus in the economy. - expenditure increase - export increase - government spending increase
B. COST-PUSH INFLATION- causes the equilibrium price to rise and the aggregate output to declinei. wage push inflationii. profit push inflationiii. import induced inflation
EFFECT OF INFLATION1. LOST OF CONFIDENCE- lost confidence in the value of money because of the fall in its value, especially in the international market.2. WIDER GAP IN REAL INCOME DISTRIBUTION-real income measures how many goods can be purchased with a given money income.
3. Inefficiency in output and decrease in the quality of output- this happens when there is demand pull inflation because high demand for goods decrease the risk of business.4. Increase in investment and output- higher profit due to higher price encourage firms to invest and product more.
ANTI INFLATION MEASURES• MONETARY POLICIES• FISCAL POLICIES• DIRECT CONTROL POLICY