inflation
INFLATION:
Inflation is a sustained increase in the general price level leading to a fall in the purchasing power of money. Inflationary pressures can come from domestic and external sources and from both the supply and demand side of the economy.
FACTORS OF INFLATION:
Inflation is defined as the rate (%) at which the general price level of goods and services is rising, causing purchasing power to fall. This is different from a rise and fall in the price of a particular good or service. Individual prices rise and fall all the time in a market economy, reflecting consumer choices or preferences and changing costs. Inflation occurs when most prices are rising by some degree across the whole economy. This is caused by four possible factors, each of which is related to basic economic principles of changes in supply and demand:
1. Increase in the money supply.
2. Decrease in the demand for money.
3. Decrease in the aggregate supply of goods and services.
4. Increase in the aggregate demand for goods and services.
COST PUSH INFLATION:
Cost-push inflation is a type of inflation caused by substantial increases in the cost of important goods or services where no suitable alternative is available.
A situation that has been often cited of this was the oil crisis of the 1970s, which some economists see as a major cause of the inflation experienced in the Western world in that decade. It is argued that this inflation resulted from increases in the cost of petroleum imposed by the member states of OPEC. Since petroleum is so important to industrialized economies, a large increase in its price can lead to the increase in the price of most products, raising the inflation rate. This can raise the normal or built-in inflation rate, reflecting adaptive expectations and the price/wage spiral, so that a supply shock can have persistent effects.
Keynesians argue that in a modern industrial economy, many prices are sticky downward or downward inflexible, so that instead
Inflation is a sustained increase in the general price level leading to a fall in the purchasing power of money. Inflationary pressures can come from domestic and external sources and from both the supply and demand side of the economy.
FACTORS OF INFLATION:
Inflation is defined as the rate (%) at which the general price level of goods and services is rising, causing purchasing power to fall. This is different from a rise and fall in the price of a particular good or service. Individual prices rise and fall all the time in a market economy, reflecting consumer choices or preferences and changing costs. Inflation occurs when most prices are rising by some degree across the whole economy. This is caused by four possible factors, each of which is related to basic economic principles of changes in supply and demand:
1. Increase in the money supply.
2. Decrease in the demand for money.
3. Decrease in the aggregate supply of goods and services.
4. Increase in the aggregate demand for goods and services.
COST PUSH INFLATION:
Cost-push inflation is a type of inflation caused by substantial increases in the cost of important goods or services where no suitable alternative is available.
A situation that has been often cited of this was the oil crisis of the 1970s, which some economists see as a major cause of the inflation experienced in the Western world in that decade. It is argued that this inflation resulted from increases in the cost of petroleum imposed by the member states of OPEC. Since petroleum is so important to industrialized economies, a large increase in its price can lead to the increase in the price of most products, raising the inflation rate. This can raise the normal or built-in inflation rate, reflecting adaptive expectations and the price/wage spiral, so that a supply shock can have persistent effects.
Keynesians argue that in a modern industrial economy, many prices are sticky downward or downward inflexible, so that instead