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1. 1
Assignment on
Inflation
Course Name: Economics
Course Code: CSE 314
Date of Submission: 12-12-2015

2. 2
Submitted To
Md. Mustafa Kamal
Lecture
Dept. of CSE
Daffodil International University
Submitted By
 Mohammad Shariful Haque
ID: 131-15-2530

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 Inflation
In economics inflation is a sustained increase in the general price level of goods and services
in an economy over a period of time. When the price level rises, each unit of currency buys
fewer goods and services. Consequently, inflation reflects a reduction in the purchasing
power per unit of money a loss of real value in the medium of exchange and unit of account
within the economy. According to Prof. Samuelson “inflation occurs when general level of
prices & cost are rising”.
In Economics, the Word inflation Refers to General rise in Prices Measured against a
Standard Level of Purchasing Power
There are several variations on inflation:
 Deflation is when the general level of prices is falling. This is the opposite of
inflation.
 Hyperinflation is unusually rapid inflation. In extreme cases, this can lead to the
breakdown of a nation's monetary system. One of the most notable examples of
hyperinflation occurred in Germany in 1923, when prices rose 2,500% in one month!
In recent years, most developed countries have attempted to sustain an inflation rate of 2-
3%.
Price Level
S
25
20
15
10
T1 T2 T3 T4 Time Period
Fig: Inflation

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 Price
Price is a value that will purchase a finite quantity, weight, or other measure of a good or
service. As the consideration given in exchange for transfer of ownership, priceforms the
essential basis of commercial transactions. It may be fixed by a contract, left to be determined
by an agreed upon formula at a future date, or discovered or negotiated during the course of
dealings between the parties involved.
 Price level
The general price level is a hypothetical daily measure of overall prices for some set of
goods and services, in an economy or monetary union during a given interval, normalized
relative to some base set. Typically, the general price level is approximated with a daily price
index, normally the Daily CPI. The general price level can change more than once per day
during hyperinflation.
 Type of Inflation
Inflation mainly two types
 Anticipated - Anticipated is something that will or might happen in the future.
 Unanticipated – Unanticipated is that will not expect or predicted.
The types of inflation based on the government's reaction or its degree of control
 Open Inflation: When government does not attempt to restrict inflation, it is known
as an Open Inflation. In a free-market economy, where prices are allowed to take its
course, Open Inflation occurs.
 Suppressed Inflation: When government prevents the price rise through price
controls, rationing, etc., it is known as Suppressed Inflation. Repressed Inflation is it’s
another name
The types of inflation based on coverage or scope
 Comprehensive Inflation: When the prices of all commodities rise in the entire
economy, it is known as Comprehensive Inflation.

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 Sporadic Inflation: Time when prices of only a few commodities in some regions
rise, it is called Sporadic Inflation. It is sectional in nature. For example, increase in
food prices due to bad monsoon
The types of inflation based on the time or period of occurrence
 War-Time Inflation: Inflation that takes place during the period of a warlike
situation is Wartime Inflation. During war, scant productive resources are all diverted
and prioritized to manufacture military goods and equipment’s. Overall it results in
very limited supply and extreme shortage (low availability) of resources (raw
materials) to produce essential commodities. Production and supply of needed goods
slow down and can no longer meet the soaring demand from people. Consequently,
prices of necessary goods keep on rising in the market, resulting in Wartime Inflation.
 Post-War Inflation: Inflation that takes place soon after a war is a Post-War
Inflation. After the war, government controls are relaxed, resulting in a faster hike in
prices than what experienced during the war.
 Peace-Time Inflation: When prices rise during the peace period, it is known as
Peacetime Inflation. It is due to enormous government expenditure or spending on
capital projects of a long gestation time.
The types of inflation based on the rising prices
 Creeping Inflation: When prices are gently rising, it is referred as Creeping Inflation.
It is the mildest form of inflation and also known as a Mild Inflation or Low Inflation.
According to R.P. Kent, when prices rise by not more than (i.e. Up to) 3% per annum
(year), it is called Creeping Inflation.
 Chronic Inflation: If creeping inflation persists (continues to increase) for a longer
period, then it is often called as Chronic or Secular Inflation. Chronic-Creeping
Inflation can be either Continuous or Intermittent.
 Walking Inflation: When the rate of rising prices is more than the Creeping Inflation,
it is known as Walking Inflation. Trotting Inflation is it’s another name. When prices
rise by more than 3%, but less than 10% per annum (i.e., between 3%, and 10% per
annum), it is called as Walking Inflation.
 Moderate Inflation: Prof. Samuelson clubbed together concept of Creeping and
Walking inflation into Moderate Inflation. It happens when prices rise by less than

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10% per annum (single digit inflation rate). According to him, it is a stable inflation
and not a serious economic problem.
 Causes of Inflation
We can define inflation with relative ease, but the question of what causes inflation is
significantly more complex.
 Demand –pull Inflation
Demand-pull inflation is asserted to arise when aggregate demand in an economy outpaces
aggregate supply. It involves inflation rising as real gross domestic product rises and
unemployment falls, as the economy moves along the Phillips curve. This is commonly
described as "too much money chasing too few goods". More accurately, it should be
described as involving "too much money spent chasing too few goods", since only money
that is spent on goods and services can cause inflation.
Fig: Demand pull Inflation
Demand pull Inflation is that when inflation rises due to demand increases.
Agnate demand and supply co-increase in point E then price is P1 when demand raises prices
rises from P1 and P2 in point F.

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 Cost-push Inflation
Cost-push inflation is an alleged type of inflation caused by substantial increases in the cost
of important goods or services where no suitable alternative is available. A situation that has
been often cited of this was the oil crisis of the 1970s, which some economists see as a major
cause of the inflation experienced in the Western world in that decade. It is argued that this
inflation resulted from increases in the cost of petroleum imposed by the member states of
OPEC. Since petroleum is so important to industrialized economies, a large increase in its
price can lead to the increase in the price of most products, raising the inflation rate. This can
raise the normal or built-in inflation rate, reflecting adaptive expectations and the price/wage
spiral, so that a supply shock can have persistent effects.
AS Aggregate Supply
AD Aggregate Demand
Fig: Cost push Inflation
When the cost of production increase then price of the good increase.
The initial price and demand intercept in point A. In this point is P1 when production cost
increase the as curve shift on the left from point A to B. where price shifted P1 and P2.
Effect in Inflation
• Investment
• Interest rates
• Exchange rates
• Unemployment

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• Stocks
• Decrease in the purchasing power
• Change the allocation of income
Measure of Inflation
1. Monetary policy
2. Fiscal policy
3. Other Measures
 Bangladesh Inflation Rate
The inflation rate in Bangladesh was recorded at 6.19 percent in October of 2015. Inflation
Rate in Bangladesh averaged 6.63 percent from 1994 until 2015, reaching an all-time high of
12.71 percent in December of 1998 and a record low of -0.02 percent in December of 1996.
Inflation Rate in Bangladesh is reported by the Bangladesh Bureau of Statistics.
Conclusion
In reality, low inflation rate and an upward economic growth is never possible. Nevertheless,
low inflation rate means slow economic growth. Whenever, money is in excess, there is
bidding by the consumers due to which the cost of goods escalate