1. Inflation is defined as a rise in the general level of prices where a unit of currency buys less than it previously could. It occurs when the money supply grows faster than the economy. 2. There are three main types of inflation: demand-pull inflation caused by increased demand, cost-push inflation caused by increased costs of production, and built-in inflation caused by expectations of future inflation. 3. While inflation has some potential advantages like enabling adjustment of wages and prices, it also has disadvantages like uncertainty that reduces investment, and loss of international competitiveness from higher prices. High or hyperinflation can severely damage an economy.

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University of salahaddin - Hawler
College of Administration and economy
Department of Banking and financial
(Inflation)
Prepeared by: Rawand Jumha
Supervisor:Dr.Amer

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List of content:
1.what's inflation?
2.understanding inflation
3.example of inflation
4.types of inflation
5.advantages and disadvantages

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what's inflation?
Inflation is a quantitative measure of the rate at which the
average price level of a basket of
selected goods and services in an
economy increases over some
period of time.
It is the rise in the general level of
prices where a unit of currency
effectively buys less than it did in
prior periods.
Often expressed as a percentage,
inflation thus indicates a decrease in the purchasing power of a
nation’s currency.
understanding inflation
As prices rise, a single unit of currency loses value as it buys
fewer goods and services. This loss of purchasing power
impacts the general cost of living
for the common public which
ultimately leads to a deceleration in
economic growth. The consensus
view among economists is that
sustained inflation occurs when a
nation's money supply growth
outpaces economic growth.

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example of inflation
For example, prices for many consumer goods are double that
of 20 years ago. When you hear your
grandparents recall, "A movie and a
bag of popcorn only cost a buck-
twenty-five when I was your age,"
they are making an observation about
inflation—the rising cost of goods and
services over time, and the decrease
in the purchasing power of the dollar.
types of inflation
1. Demand-pull Inflation - Demand-pull inflation occurs when
the overall demand for goods or services increases faster than
the production capacity of the economy. This type of inflation
leads to a demand-supply gap (i.e., a shortage), which results in
an increase in price (see also the law of supply and demand). To
illustrate this, we can look at a simple supply and demand
diagram. As you can see in the
illustration below, an increase in
demand causes the aggregate supply
curve (AD) to shift to the left (i.e., up).
However, the aggregate supply curve
(AS) doesn’t change. Therefore, the
new equilibrium price (P2) at the new
intersection of AS and AD is higher than
the old price (P1). Hence, as the name
suggests, demand-pull inflation is caused by a shift in demand.

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2. Cost-push Inflation
Cost-push inflation occurs as a result of an increase in the cost
of production. That is, when the prices of inputs (e.g., raw
materials, labor) increase, the production of goods or services
becomes more expensive, and producers
need a higher price to be profitable.
Going back to our supply and demand
diagram, we can see that the higher input
prices cause the aggregate supply curve
(AS) to shift to the left, whereas the
aggregate demand curve (AD) doesn’t
change (see also shifts in aggregate
demand). As a result, the price level
increases from P1 to P2. So unlike demand-pull inflation, cost-
push inflation is caused by a shift in supply.
3. Built-in Inflation Last but not least, expectations of future
inflation cause built-in inflation. That means, when prices rise,
workers expect (and demand) higher wages to maintain their
cost of living. However, higher wages result in higher costs of
production, which leads to higher prices, and the spiral begins.
Because of this circular dependency, built-in inflation is
sometimes also referred to as the wage-price spiral. At this
point, it is important to note that the expectations that cause
built-in inflation always originate from either persistent
demand-pull or significant cost-push inflation in the past. In
other words, built-in inflation doesn’t occur on its own. It
always needs a catalyst or a trigger to kick it off..

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Advantage
The advantages of inflation
1. Deflation (a fall in prices – negative inflation) is very harmful.
When prices are falling, people are reluctant to spend money
because they feel that goods will be cheaper in the future;
therefore they keep delaying purchases. Also, deflation
increases the real value of debt and reduces the disposable
income of individuals who are struggling to pay off their debt.
When people take on a debt like a mortgage, they generally
expect an inflation rate of 2% to help erode the value of debt
over time. If this inflation rate of 2% fails to materialise, their
debt burden will be greater than expected. Periods of deflation
caused serious problems for the UK in 1920s, Japan in 1990s
and 2000s and Eurozone in 2010s.
2. Moderate inflation enables
adjustment of wages. It is argued a
moderate rate of inflation makes it
easier to adjust relative wages. For
example, it may be difficult to cut
nominal wages (workers resent and
resist a nominal wage cut). But, if
average wages are rising due to
moderate inflation, it is easier to
increase the wages of productive workers; unproductive
workers can have their wages frozen – which is effectively a
real wage cut. If we had zero inflation, we could end up with
more real wage unemployment, with firms unable to cut wages
to attract workers.

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3. Inflation enables adjustment of relative prices. Similar to the
last point, moderate inflation makes it easier to adjust relative
prices. This is particularly important for a single currency like
the Eurozone. Southern European countries like Italy, Spain and
Greece became uncompetitive, leading to large current account
deficit. Because Spain and Greece cannot devalue in the Single
Currency, they have to cut relative prices to regain
competitiveness. With very low inflation in Europe, this means
they have to cut prices and cut wages which cause lower
growth (due to the effects of deflation). If the Eurozone had
moderate inflation, it would be easier for southern Europe to
adjust and regain competitive without resorting to deflation.
4.Inflation is better than deflation. The only thing worse than
inflation, joke economists, is deflation. A fall in prices can cause
an increase in the real debt burden and discourage spending
and investment. Deflation was a factor in the Great Depression
of the 1930s..
Disadvantage
1.High inflation rates tend to cause
uncertainty and confusion leading to less
investment. It is argued that countries with
persistently higher inflation, tend to have
lower rates of investment and economic
growth.
2.Higher inflation leads to lower international competitiveness,
leading to fewer exports and a deterioration in the current
account balance of payments. In a fixed exchange rate, e.g. the

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Euro – this is even more problematic as countries do not have
the option of devaluation.
3.Inflation can reduce the real value of savings, which might
particularly affect old people who live on savings. However, it
does depend on whether interest rates are higher than the
inflation rate.
4.Hyper-inflation can destroy an economy. If inflation gets out
of hand, it can create a vicious cycle, where rising inflation,
causes higher inflation expectations, which in turn pushes
prices even higher. Hyper-inflation can wipe out the savings of
the middle-classes, and redistribute wealth and income
towards those with debt and assets and property.

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References :
-and-advantages-https://www.economicshelp.org/blog/315/inflation/inflation
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-and-advantages-https://www.economicshelp.org/blog/315/inflation/inflation
-disadvantages/?fbclid=IwAR3DY1su
U2FfkUAj79nSKy0ZDwZLCUHwkPP0VC8EzVPUQvjlt6wFQYXWTE
https://www.investopedia.com/terms/i/inflation.asp
-strategies-investing-and-examples-definition-https://www.thebalance.com/inflation
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