1) Inflation Caused by increasing in aggregate demand. 1) Increase in money supply. 2) Increase in the demand for goods by the govt. 3) Increase the income of various factor of production.
Increase in cost of production. Entrepreneurs due to their monopoly position raise the profit margin on goods.
Country covers the budget deficits through bank borrowings andcreating now money.Purchasing power of community increases without a increase inproduction of goods.Inflation is caused by too rapid increase in money supply
2)Anticipated V/s Unanticipated Rate of inflation which majority of the individuals believe will occur. Rate of inflation which comes as a surprise to majority of individuals.
Inflationary process in which prices are permitted to risewithout being suppressed by government price control orsimilar measures. (1) Govt. makes efforts to check and control the rise in price level through price control and rationing. (2) Suppressed inflation results many evils such as black marketing, hoarding, corruption and profiteering.
(1) General Price level raises partly due to an increase In cost of Production(2) And partly due to rise in supply of money before the full employment stage is reached. (1) Economy reaches the level of full employment. (2) Increase in money supply will result in the rise in price level without any increase in output and employment.
While inflationrepresents an overallupward pricemovement of goods andservices, deflation actsadversely. We take a lookat the basics of both.
Inflation is a rise inthe general level ofprices of goods andservices in aneconomy over aperiod of time
- An increase in the general level of prices.- decrease in the purchasing power of the currency.- High or unpredictable inflation rates are regarded as harmful to an overall economy.- make it difficult for companies to budget or plan long-term.- affect the balance of trade.- negative impacts to trade from an increased instability in currency exchange prices caused by unpredictable inflation.
Deflation is a decrease inthe general price level ofgoods and services.Deflation occurs whenthe inflation rate fallsbelow 0% (a negativeinflation rate).
Deflation is a problem in a modern economy because it may aggravate recessions and lead to a deflationary spiral.The effects of deflation are:1 Decreasing nominal prices for goodsand services.2Increasing buying power of cashmoney and all assets denominated incash terms.3 May decrease investment andlending if cash holdings are seen aspreferable.4 Benefits recipients of fixed incomes.