Question

2016	1.4	1.0	0.9	1.1	1.0	1.0	0.8	1.1	1.5	1.6	1.7	2.1	1.3

2017	2.5	2.7	2.4	2.2	1.9	1.6	1.7	1.9	2.2	2.0	2.2	2.1	2.1

2018	2.1	2.2	2.4	2.5	2.8	2.9	2.9	2.7	2.3	2.5	2.2	1.9	2.4

2019	1.6	1.5	1.9	2.0	1.8

find the inflation data for the last 3 years:

1. What are your thoughts about the current state of the economy in terms of the historical inflation data for the last 3 years? Discuss either the effects or the types of inflation.

2. Is demand-pull inflation or cost-push inflation or both at play? Explain with examples.

3. Will the future (for instance, 3 years from now) lead to higher inflation rates or lower? Why or why not?

4. Will the future (for instance, 3 years from now) be more promising or otherwise for the existing unemployed? Why or why not?

Answer 1

(1) Inflation causes prices to be rises in the economy and lowering the real demand of the goods. There are four main types of inflation, categorized by their speed. They are creeping (in which prices rises by 2-3%, it increases the aggregate demand level in the economy and considered to be beneficial for the economy), walking (assumes 3-10% of price rises and it is assumes to be harmful to the economy as people try to consume more because people consume more of the thing to avoid inflation in future), galloping (prices rises by 10% and above and business closes in this phase as this inflation is much more) and hyperinflation (in which prices changes every second, people tend to go to banks to withdraw the money as money losses its value suddenly) . There are specific types of asset inflation and also wage inflation. Some experts say demand-pull and cost-push inflation are two more types, but they are considered to be causes of inflation.

In this data creeping inflation is prevailing there. As it is having inflation less than 3%.

(2) Cost-push inflation is a situation in which the overall price levels go up (inflation) due to increases in the cost of wages and raw materials while Demand-pull inflation is asserted to arise when aggregate demand in an economy outpaces aggregate supply. But we do not have any data regarding cost of wages and raw material here and neither of aggregate demand and supply here. So we cannot say anything about these inflation.

(3) In 2016, the inflation level were below 2%, in 2017/2018 it became above 2% in majority of months. In 2019, it was again coming down. If this pattern follows, we can say that inflation in the future could be lower.

(4) In next 3 years, if the pattern follows of falling inflation, business investment would go up, aggregate demand would rise. As a result, total output in the economy would rise and unemployment level would decline.