Different Types Of Inflation

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Tables for life preface Introduction

What is Inflation? Inflation is the rate at which the cost of goods and services rises over time. When inflation rises, the value of the money goes down because consumers aren't able to buy as much as they previously could with that same money. (Brooks) Increase in the price level of goods and services in a specific economy over a period of time is Inflation. The monetary value or real value of a currency falls because of the increase in prices. Inflation can also be described as a decrease in purchasing power of money and a decrease in the real value of the bills, coins or any other form of medium to exchange in that economy.
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Inflation happens due to increase in demand in market. As prices have increased and demand is good in the market, the production is increased to meet the greater demand and increase profits. As a result, production increases, level of employment rises, income rises, GDP rises which is economic growth. Figure 1 Inflation and Economic Growth
Types of Inflation:

Demand Pull Inflation: This type of inflation as suggested by the heading simply means that if demand is greater for a product, the its price will rise.

Cost Push Inflation: Increase in prices will increase the cost of production as well. This results in inflation and this type of inflation is called Cost Push Inflation.

Structural Inflation: The prices rise in an expanding country as supply cannot meet the demands because of rigidities in the structure. This is structuralism argument of inflation.

Imported Inflation: In such inflation local governments are helpless; it is due to an increase in the prices of imported goods. To control it government may bans the imported items.

Open Inflation: If there is no control over rise in prices, it will be determined by free forces of demand and supply.

Degrees of Inflation:

Figure 3 Degrees of
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Reasons of inflation differ from country to country, so diverse sorts of inflation occur at diverse places relying upon the causes which produce inflation. Nevertheless, there are some mutual causes of inflation which are defined in next segment Deficit financing Increase in money supply Increase in developmental and non-developmental expenditures Population explosion Devaluation of currency Political instability Undesirable activities

Figure 9 Causes of Inflation

DEFICIT FINANCING: It is a condition where government spending go beyond its income is said to be the deficit financing. The increased spending in the shortage budget is completed by deficit financing. Because of deficit financing the money providence in country rises but its production does not rise at the similar rate so rates tend to increase and result in inflation.


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