Inflation And Stagflation

INFLATION AND STAGFLATION • Inflation refers to an continous increase or rise in the price levels of various products,services and commodities in the economy,mainly because the value of money has fallen down. • It thereby reduces the purchasing power of the consumers.

FEATURES OF INFLATION • Process of persistant rise in prices. • Rising trend in the general price levels of goods/services. • Creates a state of disequilibrium in the economy. • Self generating. • Influenced by number of factors. • Caused by excess demand in relation to supply of certain goods and services.

CAUSES OF INFLATION • Demand pull Inflation:• Its mainly caused by an excess demand for goods and services over their supplies,either by government or by general public. • Its also know as DemandInduced inflation.

FACTORS RESPONSIBLE FOR DEMAND PULL INFLATION • Increase in Money supply. • Size of the population. • Credit creation. ( Loan facility etc.increases) • Black money. • Export trade. • Public debt.( To be cleared)

COST-PUSH INFLATION • Its caused by a rise in the prices of Raw materials,other components involved in production ,thereby leading to an increase in the cost of production,leading to rise in the prices of the products and finally leading to Inflation. • So we can conclude that,when demand increases,production takes place,even if the supplies are available at a higher cost,thereby finally leading to INFLATION.

FACTORS RESPONSIBLE FOR COSTPUSH INFLATION • • • • • • •

Higher Wages. Material costs. High Profit margin. Natural calamities. Scarcity/Shortage of goods/raw materials. Outdates techniques. Inefficiency in performance/low productivity.