INFLATION

 Inflation is a rise in the general level of

prices in an economy.

When there is inflation, each dollar of

income buys fewer goods and services;
the purchasing power of money
declines.
 DEFINITION

 On average, the prices of goods and

services are rising; however, not all prices
go up—the prices of some products
remain fairly constant or decrease.
 DEFINITION
 Inflation can be defined as a
continuous increase in the general
price level of goods and services in
the economy.
 TYPES OF INFLATION

 Demand Pull Inflation

 Cost Push Inflation

 Imported Inflation
 Demand Pull Inflation

 Occurs when AD exceeds the AS

 Keynes assumes AD exceeds AS at full

employment.

 It is associated with a booming economy or an

economy which is near the peak of its business
cycle.
 Demand Pull Inflation

 Demand pull inflation may be due to:

a) Increase in money supply

b) Increase in government purchases
c) Increase in exports
d) Increase in investments
 Cost Push Inflation

 Refers to an increase in the general

price level associated with an increase
in the cost of production.

 It is the result of the sellers activities.

 Cost Push Inflation

 Cost push inflation may arise

because of :

a) Increase in wage rates.

b) Increase in prices of raw materials.
c) Increase in other cost.
 Imported Inflation

 Occurs when the prices of imported raw

materials or finished goods increase.

 This may be due to the fluctuation of the

foreign exchange rate.
Lose
Savings
Production
Balance Of Trade
 Measures Of Inflation

Inflation Rate

= CPI current year – CPI previous year x 100

CPI previous year
EXAMPLE: Calculate the rate of inflation
for the year 2021.

Year CPI

2020 122

2021 135
 ANSWER

Inflation Rate

= 135 – 122 x 100

122

= 10.66%
 QUESTION: Calculate the rate of
inflation for the year 2014, 2015,
2016, 2017, 2018 & 2019.
Year Consumer Price Index Inflation rate
(CPI)
2013 107.1
2014 110.5
2015 112.8

2016 115.2

2017 119.5

2018 120.7

2019 121.5
Measures To Control Inflation
Contractionary Monetary Policy
Contractionary Fiscal Policy
Direct Control Measures
THAT’S ALL FOR TODAY!!!!