Economics, Business economics

1. Inflation

2. Introduction
Inflation is defined as a sustained increase in the price level or
a fall in the value of money.
Value of money depreciates with the occurrence of inflation.
When the general price level rises, value of money falls and
as such each unit of currency buys fewer goods and services.
Consequently, inflation reflects a reduction in the purchasing
power per unit of money.

3. Mathematically, rate of inflation can be
expresses as

4. Monetarists’ View
 Monetarists’ View: Monetarists assert that inflation has always been a monetary phenomenon.
The quantity theory of money, simply stated, says that any change in the amount of money in a
system will change the price level.
 This theory begins with the Fisher ’s equation of exchange:
MV = PT

5. Keyenes’ View
Inflation occurs when price rises after the stage of full
employment is reached in the economy, with no
corresponding rise in employment and output.

6. Causes
When demand for a commodity in the market exceeds
its supply, the excess demand will push up the price
(‘demand-pull inflation’).
When factor prices rise, costs of production rise (‘cost-
push inflation’)

8. Demand Pull Inflation

9. Demand Pull Inflation

10. Cost Push Inflation
 Inflation may originate from supply side also.
 Aggregate demand remaining unchanged, a fall in aggregate
supply due to exogenous cause, may lead to increase in price
level.

12. Cost Push Inflation

13. Thank You