Financial Markets and Institutions

Class 3 – Reflection Paper

February 5, 2023

Anindita Saha, Roll: 002, BBA-28

Money gives people purchasing power. If there is more money in the economy, people’s
purchasing power increases, resulting in inflation.
Inflation can be of two types:

Demand Pull Inflation Cost Push Inflation

Caused by increase in income or money supply
People are not harmed much
Present in all growing economies
Caused by natural and other catastrophes
People suffer quite a lot
Self-sufficient economy would not
experience this

Recession can be caused in 2 major ways:

1. As an aftermath of cost-push inflation, where the aggregate supply curve shifts
inwards and causes GDP to fall.
2. When demand does not grow as much as supply or when demand falls, causing the
aggregate demand curve to shift inwards and pulling GDP down.