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Assignment Content
1. Introduction
1.1: Objectives
1.2: Introduction
1.3: Definition of inflation.
1.5: Inflation and Deflation.
1.4: types of inflation.
1.5: causes of inflation
1.6: results come from inflation.
1.7: controlling inflation
2. Body
2.1: Effect of inflation to the consumers
2.2: Effect of inflation to the investors
3. Conclusion
3.1: Recommendation
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natural gas declining in price, in an otherwise stable price environment.
During healthy economic times when the economy is experiencing neither inflation nor
deflation, a term like price stability might describe the economic pricing environment at
the time
Inflation in general terms means expansion.
Inflation is a rise in the general level of prices of goods and service in an economy
over a period of time. When the general price level rises, each unit of currency buys
fewer goods and services.
When the level of currency of a country exceeds the level of production, inflation
occurs.
Value of money depreciates with the occurrence of inflation.
Inflation is a rise in the general level of prices of goods and services in an economy
over a period of time.
Inflation also reflects erosion in the purchasing power of money.
Inflations effects on an economy can be positive or negative.
The rate of inflation is measured by the annual percentage change in the level of prices
as measured by the consumer price index.
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
Definition of Inflation
In economics the Word inflation Refers to General rise in Prices Measured against a
Standard Level of Purchasing Power.
According to C.CROWHTER, “Inflation is state in which the value of money is falling
and the prices are rising”
According to Gregory “it is an increase in the quantity of purchasing power”
Johnson defines inflation “as the increase in the quantity of money faster that the
national output is expanding”
Inflation is the rate at which prices rise and purchasing power fails.
Inflation means there is a sustained increase in the price level.
Inflation occurs when the price of goods and service rise, while deflation occurs when
those prices decrease.
Inflation is the state when the value of money is falling and there is an upward rise in
price level.
Inflation is defined as a sustained increase in the price level or a fall in the value of
money
Inflation and Deflation
While inflation represents and overall upward price movement of goods and services,
deflation acts adversely. We take a look at the basics of both.
Inflation is a rise in the general level of prices of goods and services in an economy
over a period of time.
Deflation is: the opposite of inflation.
Deflation is a decrease in the general price level of goods and services.
Deflation occurs when the inflation rate falls below 0% (a negative inflation rate)
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Deflation is the result of the lack of aggregate demand in the economy, forcing
suppliers to cut prices to attract customers.
Deflation is the result of the lack of aggregate demand in the economy, forcing
suppliers to cut prices to attract customers.
Inflation lowers your standard of living if your income doesn't keep pace with rising
prices (and it rarely does). However, if inflation is around 2 percent, then people buy
things now before prices go up in the future. That can spur economic growth.
Inflation and deflation have entirely different effects upon an economy so they will
be considered separately
Types of Inflation
on the basis of speed or intensity,
there are four main types of inflation, categorized by their speed.
1. Creeping,
in the initial stage of the inflation, prices rise at a very low rate, this mild rate
inflation may be referred to as creeping inflation
If the speed of upward thrust in prices is slow but small then we have creeping
inflation.
Creeping or mild inflation is when prices rise 3 percent a year or less.
2. Walking,
When the price is moderate. It is warning signal for the government to control it
before it turns into running inflation
If the rate of annual price increase lies between 3 percent and 4 percent. Then
we have the situation of walking inflation.
3. Running inflation
a rapid acceleration in the rate of rising price more than 10 percent per annum is
referred as running inflation.
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When inflation rises to 10 percent or more, it wreaks absolute havoc on the
economy. Money loss value so fast that business and employee income can’t
keep up with costs and prices.
4. Galloping inflation
When the monetary authorities lose control over the running inflation, it may
result into hyper inflation. This is the final stage of inflation, where there is no
limit to which the price level may rise.
Example of hyperinflation includes Germany in the 1920s, Zimbabwe in the
2000s, and American during its civil war.
Causes of inflation
There are two main causes of inflation
the most common cause of inflation is
1. Cost-push inflation: or other times called supply shock inflation:
when the companies create inflation when they raise their prices to cover higher supply
prices and maintain margins.
Increase in cost of production.
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Entrepreneur due to their monopoly position raise the profit margin on goods
2. Demand-pull inflation:
is the most common, it is when demand for a good or service increases so much
that it outstrips supply.
That prices increase when demand for goods and services exceed their supply.
When demand grows faster than supply it pushes general prices up, this can be
described as “too much money cashing too few goods”
Inflation caused by increasing in aggregate demand.
Factor
increase in money supply
increase in the demand for goods by the govt.
increase the income of various factor of production
The other factors caused inflation include
1. The Money Supply
Inflation is primarily caused by an increase in the money supply that outpaces
economic growth
2. The National Debt
we all know that high national debt in the U.S. is a bad thing, but did you know
that it can actually drive inflation to higher levels over time? The reason for this
is that as a country’s debt increases, the government has two options: they can
either raise taxes or print more money to pay off the debt.
3. Exchange Rates
Inflation can be made worse by our increasing exposure to foreign marketplaces.
In America, we function on a basis of the value of the dollar. On a day-to-day
basis, we as consumers may not care what the exchange rates between our
foreign trade partners are, but in an increasingly global economy, exchange rates
are one of the most important factors in determining our rate of inflation.
Printing more money: if the central bank prints more money, you would expect to
see a rise in inflation.
This is because the money supply plays an important role in determining prices.
Increase in disposable income
Foreign exchange reserves
erratic agriculture growth
inadequate industrial growth.
Increase in population
expansion of bank credit
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High or unpredictable inflation rates are regarded as harmful to an overall
economy.
Negative impacts to trade from an increased.
Price increase can worsen the poverty affecting the low income households.
producers will not be able to control the cost of raw material and labor
Controlling inflation
there are broadly two ways of controlling inflation in an economy
1. Monetary measures
2. Fiscal measures. And also other measures
1.monetary measures
the most important and commonly used method to control inflation is monetary policy
of the central bank. Most central banks use high interest rates as the traditional way to
fight or prevent inflation.
Monetary measures used to control inflation include
bank rate policy (interest rate increase)
contraction money supply
open market operation
2.Fiscal measures
fiscal measures to control inflation include taxation, government expenditure and public
borrowings.
Fiscal measures used to control inflation include
increase in taxes
increase in savings
3. Others measures
to increase production
price control
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Effects of inflation to the Economic Growth
inflation effects economies in various positive and negative ways.
Benefits
debtors
entrepreneurs
farmers
upper income groups
loses
creditors
fixed income groups
consumers
middle and lower income groups
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In other hand the consumers stand at the loosing end, while the producers
having old inventories may gain form the inflation, and also people with fixed
income group are the worst sufferers of inflation.
High inflation may lead to shortages of goods if consumers begin hoarding out of
concern that prices will increase in the future.
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.
Recommendations
controlled by strategic planning with inflation.
Domestic production should be encouraged
Development in agricultural sector
Strong monitoring system on different levels
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References
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