NAIRU Essays

THEORETICAL FRAMEWORK 2.1. Inflation and Economic growth Theoretical discussion From many years ago, the relationship between inflation and growth was a debatable topic among economists. More economic theories were developed by various theorists and schools to explain relationship between inflation and growth. These theories are founded on various study of the phenomenon but no theory gives full explanation. The former inflation-growth theories were built on cyclical observations. The persistent

Inflation is the rate at which the general level of prices for goods and services is rising, and, then purchasing power falling over a period of time. When price level rises, dollar buys fewer goods and services. Therefore, inflation results in loss of value of money. Inflation is divided into two categories Cost-push and Demand pull inflation: Cost-push inflation means that prices have been hiked up by increases in costs of any of the four factors of production such as (labor, capital, land or