This document discusses inflation and related economic concepts. It defines inflation as a general rise in prices throughout the economy. It also defines deflation and hyperinflation. The document outlines the four main functions of money and discusses monetary policy and central banks' role as lender of last resort. Both negative and positive outcomes of inflation are presented. Recent inflation figures for Ireland are given, showing a rate of 2.85% in October 2011. Goods driving inflation in Ireland are identified as clothing, furnishings, housing costs, and electricity.

1. Inflation
By Samantha Delamere &
Ger Fylnn

2. Contents
 Four functions of money
 Monetary Policy
 Central Banks policy as lender of last resort
 Explanation of inflation, deflation &
hyperinflation
 Negative outcomes of inflation
 Positive outcomes of inflation
 Recent inflation figures & goods that are
driving inflation in Ireland

3. Four functions of money
 Medium of Exchange - trading and exchanging of
goods that have monetary value
 Unit of Account – the comparison and value of
goods(worth)
 Standard of Deferred payment – agreement of
payment (based on credit)
 Store of Wealth – the fluctuation in price of a goods
value.
 reference:http://www.preservearticles.com/201104115268/4-essential-
functions-ofmoney.html DateAccessed:13/11/2011

4. Monetary Policy
 What Does Monetary Policy Mean?
 The actions of a central bank, currency board or
other regulatory committee that determine the size
and rate of growth of the money supply, which in
turn affects interest rates. Monetary policy is
maintained through actions such as increasing the
interest rate, or changing the amount of money
banks need to keep in the vault (bank reserves).
Reference:
http://www.investopedia.com/terms/m/monetarypolic
y.asp#axzz1dtHuxPRD

5. Lender of Last Resort
A Central Banks Function as “Lender of
Last Resort” means that a country’s
Central Bank offers loans to small
commercial banks and other financial
institutions, that are experiencing difficulty
or near collapse.
 Reference:
http://www.centralbanksguide.com/lender+of+last+res
ort/

6. Inflation
 by inflation we mean a general rise in
prices throughout the economy.
Government policy here is to keep
inflation both low and stable.
(J.Sloman,2001, 2nd edition, Pearson
Education Limited. 'Essentials of
Economics', pp.244-245)

7. Deflation
 This is where the Government deliberately
curtails aggregate demand by either
fiscal policy or monetary policy or both.
(J.Sloman,2001, 2nd edition, Pearson
Education Limited. 'Essentials of
Economics', pp. 452)

8. Hyperinflation
 The costs of inflation may be relatively mild if
inflation is kept at single figures. They can be very
serious, however, if inflation gets out of hand. If
inflation develops into ‘hyperinflation’ with prices
rising perhaps by several hundred per cent or
even thousands per cent per year, the whole basis
of the economy will be undermined.
(J. Sloman, 2001, 2nd edition, Pearson Education
Limited. 'Essentials of Economics', pp.277)

9. Negative Outcomes
 Commodities
 Competitiveness with different countries
 Currency Devaluation

10. Positive Outcomes
 Government ++
 Company Competitiveness
 Tourists
 Commodities (Environmentally aware)

11. Recent Inflation Figures
Current Rate
 In October 2011 its
is reported that the
current rate of
inflation in Ireland is
at 2.85%
 Source1:
http://www.tradingecono
mics.com/ireland/inflation-
cpi

12. Recent inflation figures
 The Consumer Price Index (CPI) is
designed to measure the change in the
average level of prices paid for consumer
goods and services by all private
households and foreign visitors to Ireland.
The CPI is the official measure of inflation
in Ireland.
 source2:
http://www.citizensinformation.ie/en/consumer_affairs/consum
er_protection/pricing/consumer_price_index.html

13. Goods that drive inflation here
in Ireland
 Clothing & Footwear and Furnishings, Household Equipment
&Routine Household Maintenance rose due to a recovery in
prices following the traditional summer sales.
 Housing, Water, Electricity, Gas & Other Fuels rose due to an
increase in the cost of electricity and higher mortgage interest
repayments.
 Miscellaneous Goods & Services fell mainly due to a decrease
in the cost of home insurance.
 Source3:
http://www.cso.ie/releasespublications/documents/prices/current/cpi.pdf