Question

1) Define inflation, explain the different types of inflation and discuss the curse of inflation?

2) Which of them is or will more likely to become reality in our time of pandemic?

Answer 1

1):-inflation is defined as a sustained increase in the general price level of goods and services in an economy over a period of time

Types of inflation

hyperinflation is occurs dur to a very rapid rise in the price level it is an extremely high rate of inflation.

stagflation is a condition of slow economic growth and relatively high unemployment accompanied by rising prices or inflation and a decline in gdp.

deflation is occurs due to continuous decline in the general level of prices in an economy.

disinflation is refers to a slow down in the rate at which prices are rising in general

creeping inflation is inflation which occurs in the range of 1-3 %

galloping inflation is kind of more intense form of inflation that can go as high as 100 to 300 percent

cost-push inflation is inflation which occurs when we experience rising prices due to high costs of production aka higher costs of raw materials (firms will raise their prices to cover these additional costs of production)

demand-pull inflation is inflation which occurs due to sustained increase in the general level of prices caused by growth in aggregate demand for goods and services exceeding growth in aggregate supply.

causes of inflation

1. demand pull inflation

2. cost push inflation

3. excess monetary growth

causes demand pull inflation are

1. growing economy as when families feel more confident, they spend more instead of saving. will also borrow more.

2. expectation of inflation as if those expect higher rates then they will spend more now

3. strong brands

4. technological innovation like the Tesla sports car; company sells parts to many other firms

5. disrectionary fiscal policy

causes cost push inflation are

1. when supply costs increase or the level of supply decreases. Prices rise in the final good or service if demand remains the same

2. if demand is price inelastic

3. companies that achieve a monopoly over an industry create cost-push inflation such as the OPEC in the 1970s oil embargo as they contrl 80% of the oil in the world

4. wage inflation—when workers have high enough leverage to force wage increases. then, firms pass on costs through higher prices to consumers.

5. shift in exchange rates