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What is Inflation
# Inflation is a general increase in the overall
price level of the goods and services in the
economy
# Inflation occurs when the prices of goods
and services increase over time. Inflation
cannot be measured by an increase in the
cost of one product or service.
# Inflation occurs due to an imbalance
between demand and supply of money,
changes in production and distribution cost or
increase in taxes on products.
CAUSES
1. Increase in money supply
2. Inadequate agricultural and industrial growth
3. Rising import prices
4. Rising taxes
5. Rising house prices
6. Raw material prices
7. Rising wages
IMPACT
Positive Impact
1.
2.
3.
4.
5.
6.
7.
8.
Negative Impact
Real income of people would decrease.
Inflation is regressive in nature.
Would increase income inequalities.
Capital
formation
is
adversely
affected.
Promotes generation of Black Money.
Standard of living would reduce.
Promote hoarding and speculation.
Adversely effects BOP situation
Related Terms
4. Deflationary gap:
Aggregate supply > Aggregate demand
5. Suppressed / Repressed inflation:
Here govt. will not allow rising of prices.
6. Open inflation:
Situation where price level rises without
any price control measures by the
government.