Inflation

Inflation & Types

 Inflation
 General increase in prices

Types
1. Creeping – when inflation stays low for a long
time
2. Chronic – when inflation steadily increases
for a long time
Types cont.
3. Hyper- inflation
– worst type, out of control
- could go up to 500% a month
- leads to economic collapse
Causes of Inflation
 Quantity theory – too much money in
the economy causes inflation
 Demand-pull Theory – when demand for
goods/services exceeds existing supplies

 Cost push theory – when producers raise

prices to meet increased costs, leads to
wage price spiral.
Effects
 Purchasing Power
 Ability to purchase goods & services

 As inflation increases purchasing power

decreases
Concerns
 Hard to anticipate the costs of
goods/services
 Lose money on investments
 Struggle if on a fixed income
 Who would most likely benefit from an
unexpected 10% inflation rate?
a. Alok who has Rs. 50000 in a savings
account
b. Mary, who has Rs.5000 life insurance
policy
c. Rakesh, who loaned Angel Rs.5 lac last
year
d. Ambika, who borrowed Rs.5 lacs last year