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INFLATION

the quantity of money measured in a particular currency. directly proportional to the price level Real money .the quantity of money measured as a constant. it is the quantity of money measured in terms of what it will buy Real Money = Nominal money/Price Level .MONEY   Nominal money.

INFLATION a rise in the price level measured against some baseline of purchasing power  a falling of a buying power of money  Pure inflation – all prices rise at the same level .

weighted average of prices of a specified set of goods and services purchased by consumers  .CALCULATING INFLATION  Inflation rate= nominal money growth – real money demand growth CPI (Consumer Price Index).the most common measure of inflation.

high inflation combined with economic stagnation and unemployment  .a falling in general level of prices  DISINFLATION .OTHER TERMS DEFLATION .an out-of-control inflationary spiral  STAGFLATION .the reduction of rate of inflation  HYPERINFLATION .

INFLATION AND INTEREST RATES Inflation Turkey Russia Venezuela 62 20 12 Interest Rates 57 25 15 Hungary Chile Switzerland 8 4 1 11 3 2 Japan -1 0 .

nominal interest rate is also about 1 percentage higher  Real interest rates do not change much  .Fisher’s Theory Higher inflation leads to similarly higher nominal interest rates  When inflation rate increases by 1%.

HYPERINFLATION  period of very high inflation fiscal policy is out of control  .

cost 192 million reichmark in October 1923  .HYPERINFLATION IN GERMANY Printing money to combat deficit  Stamping another zeros  Prices rose 75 times in 192  A drink that cost 1 reichmark in January 1922.

CURVE Higher inflation rate is accompanied by lower unemployment rate  Reduction of inflation by adjusting the level of employment  .

1% 1.9% 3.0% 32.9% 1998 2000 2002 2004 2006 11.8% 43.1% 585.8% 10.INFLATION IN POLAND Year 1988 1990 1992 1994 1996 Level of inflation 8.5% 1.6% .2% 19.

INFLATION IN POLAND .

 .8%  Inflation in September 2006 equals to 1.9%  Bank representatives estimate that inflation is going to rise up to 2.6%  The average level of inflation from the past twelve months is equal to 0.7% in December this year.INFLATION IN POLAND In recent years the highest inflation was in 1990 and accounted for 585.

financing the deficit of money by printing Sudden increase in production costs Significant increase in the level of energy resources Faulty structure of the economy Exported goods far exceeding imported ones Too many monopolies in the economy Imported inflation .REASONS OF INFLATION         Lack of balance in the country’s budget Financial problems.

CONSEQUENCES OF INFLATION       Decrease in value of money which are not deposited in the bank Shoe-leather costs of inflation Menu costs of inflation Difficulties in comparing the prices when the level of inflation high and changes over certain time Problems with financial planning Fiscal drag .

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