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Essay On Causes Of Inflation

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Causes of inflation
Generally inflation is identified as a rise in the typical price level. In other words, prices of many goods and services such as housing, clothing, food, transportation, and gasoline must be increasing in order for inflation to happen in the overall economy. Inflation may be measured in numerous ways. The September 1999 Ask Dr Econ question notes that inflation is often measured by either a Gross Domestic Product Deflator (GDP Deflator) or Consumer Price Index (CPI) indicator. The GROSS DOMESTIC PRODUCT Deflator is a wide-ranging index of inflation in the economy; the CPI Index measures changes in the price degree of a broad basket of consumer products. Another measure of inflation is the Personal Consumption Expenditure …show more content…

In fact, deflation is an abnormal phenomenon that does not occur in the course of a regular economic cycle. It indicates that the economic conditions are …show more content…

When the economy undergoes a series of deflation, cash is one of the best possible investments for the investors. They will watch their money prudently by holding onto it. In addition, the interest that the investors earn during deflation often drop significantly as the central bank attempts to reduce interest rate in order to cope with deflation. As a result, the amount of available money for spending will decrease. Hence, deflation will encourage investors and purchasers to gather and hold money on hand, rather than investing in solid and assured securities. Since the investors are scared of investing and businesses are not generating significant profits, many other investments may tend to yield a negative return or even highly volatile. Therefore, the stock market will decline as the investors reduce their investment

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