Inflation

What is inflation? The term "inflation" originally referred to

increases in the amount of money in circulation, and some economists still use the word in this way.

 Most economists today use the term "inflation" to refer to a rise in the price level.

 Economists generally agree that in the long run, inflation is caused by increases in the money supply.

However, in the short and medium term, inflation is largely dependent on supply and demand pressures in the economy.

Causes of Inflation

Demand pull inflation:- Demand-pull inflation happens when people's incomes rise, but the amount of goods and services in the marketplace remain the same. Since people have more money to spend, they are willing to pay more for goods and services. In other words, the total demand will go up, which will cause prices to rise. Demand-pull inflation has been described as "more money chasing the same amount of goods."

Cost push inflation:- Cost-push inflation happens when the cost of producing the item goes up. This means that the total supply for an item goes down, and again prices rise.

HOW TO CONTROL INFLATION?

Monetary Measures Fiscal Measures

Monetary Measures

Credit Control:- Controlled by RBI. Issue of New Currency

Fiscal Measures

Reduction in Unnecessary Expenditure Increase in Taxes Surplus Budgets Public Debt

EFFECTS OF INFLATION

They add inefficiencies in the market, and make it difficult for companies to budget or plan long-term.

Uncertainty about the future purchasing power of money discourages investment and saving.

There can also be negative impacts to trade from an increased instability in currency exchange prices caused by unpredictable inflation.

Higher income tax rates. Inflation rate in the economy is higher than rates

in other countries; this will increase imports and reduce exports, leading to a deficit in the balance of trade.

Stagflation

A condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, or inflation.

Hyperinflation

Hyperinflation is a situation where the price increases are so out of control that the concept of inflation is meaningless. 

Examples of Hyperinflation

Austria In 1922, inflation in Austria reached

1426%, and from 1914 to January 1923, the consumer price index rose by a factor of 11836, with the highest banknote in denominations of 500,000 krones.

• Free City of Danzig Danzig went through its worst inflation in

1923. In 1922, the highest denomination was 1,000 Mark. By 1923, the highest denomination was 10,000,000,000 Mark.

Georgia Georgia went through its worst inflation in

1994. In 1993, the highest denomination was 100,000 coupons [kuponi]. By 1994, the highest denomination was 1,000,000 coupons. In the 1995 currency reform, a new currency, the lari, was introduced with 1 lari exchanged for 1,000,000 coupons.

Thank You

Done by Vignesh Nathan