Inflation is the rate at which prices increase annuallyPrices go up due to two factors i.e. cost-push factorsand Demand-pull factors .Too much money chasing, too few goods.
For a Common Man - Rise in price. In Economics –Slow & Steady rise in price over a period of time
Inflation is defined as rise in the general level of prices of goods andservices in an economy over a period of time
Other Definitionsa) Harry Johnson “sustained rise in price”b) Coulborne “Too much money chasing too few goods.”c) Crowther “a state in which the value of money is falling i e. prices are rising.”d) Samuelson “ inflation occurs when the general level prices and costs are rising”e) J M Keynes “ increase price after the level of full employment is reached is true inflation”
Types of InflationA) According to Rate of Inflation:i. Creeping Inflationii. Walking Inflationiii. Running Inflationiv. Galloping/Hyper InflationB) According to Time Period:i. Peace-time Inflationii. War-time Inflationiii. Post war-time Inflation
Y Hyper inflationPercentage of Price level Running inflation Walking inflation Creeping inflation X Time in Years
C) According to the scope or coveragei. Comprehensive inflationii. Sporadic inflationD) According to the Government’s reactioni. Open inflationii. Suppressed inflation
Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. The most famous example of hyper inflation occurred inGermany between January 1922 and November 1923.
According to Causes :A) Demand pull inflation : Demand side factors leads to demand pull inflation .It occurs when aggregate demand is in excess of aggregate supply because of monetary and real factors which are described below : Increase in Money Supply Government Spending Cut in tax rates Credit creation
B)Cost push inflation It emerges in the economy in the absence of excess demand due to pressure of various factors which shift the aggregate supply function.High wages (wage push inflation)Profit push inflation
2) Differs greatly if calculated on the Consumer PriceIndex (CPI)
Causes of Inflation A Demand Side B Supply Sidei) Increase in income i) Shortage of supplyii) Increase in Public of FOP expenditure ii) Hoarding by tradersiii) Reduction in iii) Hoarding by taxation consumersiv) Repayment of past iv) Reduction in internal debt importsv) Parallel economy v) Increase in exports DR G K KALKOTI 18
Effects of InflationA Effects on Productioni) Affects Savings & Investmentii) Leads to Speculationiii) Leads to Hoardingiv) Distortion of Production Patternv) Deterioration of Qualityvi) Creation of Sellers’ marketvii) Confidence in currency is lost DR G K KALKOTI 20
B Effects on Distributioni) Debtors and Creditorsii) Entrepreneurs and businessmeniii) Fixed income groupsiv) Investorsv) Farmersvi) Anti-social elements DR G K KALKOTI 21
Control of Inflation( Anti Inflationary Measures)A)Monetary Measures i) Quantitative and Qualitative Credit ii) Control MeasuresB)Fiscal Measures i) Effective Taxation Policy ii) Effective Public Expenditure Policy iii) Public Borrowing DR G K KALKOTI 23
C Direct Measuresi) Increase Supply of FOPii) Control of Populationiii)Control of Hoardingiv)Temporary Increase in Importsv) Temporary Decrease in Exports DR G K KALKOTI 24