5. • Demand-pull inflation results in higher prices because
consumers want to buy more goods and services than producers
supply.
• Thus demand pulls up the Price
6. An inflation that starts with an increase in costs is called cost-push
inflation.
Reasons:
1. An increase in the money wage rate
2. An increase in the money price of raw materials, such as oil
9. Impact of Inflation
on Consumers
Inflation erodes
purchasing
power.
Disturbs the
Consumers
Budget.
10. Impact of Inflation
on Farmers
• Huge Gainers
during Inflation.
• However it’s a
short term
phenomena
which cannot be
assured in the
long run.
• This is because
agriculture
dependent on
the monsoon.
11. Impact of Inflation
on Businessmen
• During inflation, the
producers and
businessmen gain in the
short period.
• Usually the cost of
production does not rise
as fast as the price of
their product and so
there is high margin of
profit.
• However in the long run
as the price level goes
on increasing, the
consumption for their
product would fall.
• The reduced
consumption will
ultimately rise the cost of
production per unit and
reduce the profits.
12. Role of
Government
At one end the Govt. is
committed to take the
economy to higher
levels of economic
growth by encouraging
production.
On the other end, the
Govt. is duty bound to
see that the tax payers
money is not eroded.
So Govt. acts as a
balancing force between
the consumers and
producers
18. The general
prices of goods
and services of
an economy falls
for a significant
period of time.
In other words,
your money
becomes worth
more and you
can buy more
goods and
service with it
than before.
25. • The Phillips curve given by A.W. Phillips
shows that there exist an inverse
relationship between the rate of
unemployment and the rate of increase in
nominal wages.
• A lower rate of unemployment is
associated with higher wage rate or
inflation, and vice versa. In other words,
there is a tradeoff between wage inflation
and unemployment.
• Reason: during boom, demand for labour
increases. Due to greater bargaining power
of the trade union, wage increases.
