About inflation and its causes.

2. What is Inflation ?
Inflation is a sustained increase in the
general price level of goods and
services in an economy over a period
of time or, alternatively, the decline in
value of money so that it takes more
dollars to buy the same goods and
services

3. IMPACTOF INFLATIONON EXCHANGERATE
When currency
value
depreciates
When price level
increase

4. Causes of Inflation
1. Demand pull inflation
If the economy is at or close
to full employment then an
increase in AD leads to an
increase in the price level. As
firms reach full capacity, they
respond by putting up prices,
leading to inflation. Also,
near full employment,
workers can get higher wages
which increases their
spending power.

5. 2. Cost Push Inflation
If there is an increase in the costs of firms, then firms will pass this on to consumers. There will be a shift to the left in the AS.If there is an increase in the costs of firms, then firms will pass this on to consumers. There will be a shift to the left in the AS.If there is an increase in the costs of firms, then firms will pass this on to consumers. There will be a shift to the left in the AS.If there is an increase in the costs of firms, then firms will pass this on to consumers. There will be a shift to the left in the AS.
If there is increase in cost of
inputs of a firm then firm pass
that cost to the consumer. There
will be left shift in aggregate
supply curve.
Cost push inflation can be
caused by many factors:
Rise in wages
Rise in imports
Rise in price of raw material
Higher taxes
Decline in productivity
If there is an increase in the costs of firms, then firms will pass this on to consumers. There will be a shift to the left in the AS.

6. 3. Printing more money
If the Central Bank prints more
money, you would expect to see a
rise in inflation. This is because the
money supply plays an important
role in determining prices. If there
is more money chasing the same
amount of goods, then prices will
rise.

7. Effects of inflation
Balance of
trade
Greater
inequality of
income
Increase in
production and
investment
Exchange rate

8. Who gains, who loses
Gainers
Businessman
Farmer
Shareholder
Government
Debtor
losers
Wage earners
Pensioners
Students
Bondholders
Creditors
Creditors lose as the principle sum received is less in terms of real income.

9. India Inflation Rate 2012-2014

10. Other terminologies related to Inflation
• Stagflation refers to economic
condition where economic
growth is very slow or stagnant
and prices are rising.
Stagflation
• Hyperinflation is a situation
where the price increases are
too sharp.
Hyperinflation
• Deflation refers to situation,
where there is decline in
general price levels.
Deflation

11. CONCLUSION
Finally , inflation is a sign that an economy is growing . People
consider inflation as a bad symbol but they often ignore the fact that
income of people also rise with inflation.
In some situation, deflation can be as bad as high inflation. The lack
may be an indication that the economy is weakening. As we have
seen its not easy to label inflation as good or bad. It depends on
overall economy as well as our personal situation. Inflation is a part of
every economy .