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Causes and effects of inflation

Coach Adams 7th period project

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Causes and effects of inflation

  1. 1. An in depth look at the Causes and Effects of Inflation Janaye Campbell 7 th period
  2. 2. Causes of Inflation
  3. 3. Demand Pull <ul><li>The economy usually demands more goods and services than companies are able to produce. This supply shortage enables sellers to raise prices. </li></ul>
  4. 4. Cost Push <ul><li>shortages or shocks to the available supply of a certain good or product will cause a “ripple effect” through the economy by causing a rise in prices from the producer to the consumer. </li></ul>
  5. 5. Money Supply <ul><li>If the amount of money produced is not controlled, it may grow at a rate faster than that of the potential output in the economy, or real GDP. This can cause a drive up or rise of prices which leads to inflation. </li></ul>
  6. 6. Wage-Price Spiral <ul><li>Inflation can also be created through an increase in wage earner’s demands and then as a result the increase in the costs of products (goods and services). This will cause higher prices for the wage earners or consumers. As demands grow higher on each side, inflation will continue to rise. </li></ul>
  7. 7. Effects of Inflation
  8. 8. Depreciation <ul><li>As a result of inflation, the value of many goods and services will change, as the goods and services become more expensive. </li></ul>
  9. 9. Distribution of Income <ul><li>As a result the of the inflation, the gaps between income will seem a lot more vast as the increases in price will affect the various classes differently. </li></ul>
  10. 10. Shifts in Spending Habits <ul><li>As wages change to adjust to the inflation rates, people start to change how they spend their money and what they spend it on. </li></ul>
  11. 11. Speculation Spending <ul><li>When people think that there will be an increase in price on a particular good, they usually try to beat the price increase by buying the good in large amounts before the price increase happens. </li></ul>