The Inflation

Topics: Inflation, Economics, Money Pages: 3 (959 words) Published: May 15, 2013
First of all, when we speak about inflation, we should make clear what is the exact defination of it. Inflation is one of the most important economic concepts. At its most basic level, inflation is simply a rise in prices. Over time, as the cost of goods and services increases, the value of for example of a dollar is going to go down because you won’t be able to purchase as much with that dollar as you could have last month or last year. When the purchasing power of a currency starts to decline steadily and dramatically the result is always inflation. There are 3 main types of inflation based on the rate of rising prices: * when prices rise by upto 3% per annum (year), it is called Creeping Inflation. It is the mildest form of inflation and also known as a Mild Inflation or Low Inflation. * if prices rise by double or triple digit inflation rates like 30% or 400% or 999% per annum, then the situation can be termed as Galloping Inflation. * when prices rise above 1000% per annum ( four digit inflation rate), it is termed as Hyperinflation. It is a stage of very high rate of inflation. While economies seem to survive under galloping inflation, nothing good can be said about this type . Hyperinflation occurs when the prices go out of control and the monetary authorities are unable to impose any check on it. Two worst examples of hyperinflation recorded in world history are of those experienced by Germany in 1923 and Hungary in 1946.

Apart from that, economists have formulated several definitions and theories. There is no single cause of inflation. According to Keynesian economics there are two basic types of inflation: Demand-Pull Inflation and Cost-Push Inflation.The concept of Demand-Pull Inflation deals with the idea that the demand for goods and services in an economy is more than the supply. For example fuel prices can rise when there’s no change in oil-producing, but more people want to use car on the roads, so they will have to share the same...
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