Inflation

MEANING:

• In economics, inflation is a rise in the

general level of prices of goods and services
in an economy over a period of time. When
the general price level rises, each unit of
currency buys fewer goods and services.
Definitions of inflation:
• According to Websters “An increase in the amount
of currency in circulation, resulting in a relatively
sharp and sudden fall in its value and rise in prices”.
It may be caused by an increase in the volume of
paper money issued or of gold mined or a relative
increase in expenditures as when the supply of goods
fails to meet the demand.
CAUSES OF INFLATION:

• Demand pull inflation:Demand-pull inflation

occurs when the overall demand for goods and
services in an economy increases more rapidly than
the economy's production capacity.
• Cost push inflation:Cost-push inflation is a result
of the increase in the prices of production process
inputs. 
• Built in inflation: As the price of goods and
services rises, labour expects or demands more
costs/wages to maintain their cost of living. Their
increased wages result in higher cost of goods and
services
EFFECT OF INFLATION:
• Investment
• Interest rates
• Exchange rates
• Unemployment
• Stocks
• Decrease in the purchasing power
• Change the allocation of income.
Pros and cons of inflation:
• Inflation has both good and bad sides, depending
upon which side one takes.
• For example, individuals with tangible assets, like
property or stocked commodities, may like to see
some inflation as that raises the value of their assets
which they can sell at a higher rate. However, the
buyers of such assets may not be happy with
inflation, as they will be required to shell out more
money.
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