Knowledge in Inflation
Inflation-Macro Economics
Inflation is commonly understood as a situation of substantial, and general increase in the level of prices of goods and services in an economy and a consequent fall in the value of money over a period of time.
AKSHAT RAO PATIL
Ppt on Inflation, Activity and Nominal Money Growth, Macroeconomics
This pdf contains ppt on Inflation, Activity and Nominal Money Growth( chapter 9) under the subejct of Macroeconomics and applications. This ppt has been made by expert faculty and is really helpful to understand the related topic.
HARPREET SINGH
economics and management
This ppt ids useful for computer engineering students as it is the notes of unit 5 of isee subject.It contains definition of inflation,causes of inflation and also the ways to control inflation.
Kritika Rai
Assignment on Inflation
This is the assignment on inflation which explains inflation through its definition, types, causes, effects etc.
Akshay Soni
Inflation
In 1980 in the United States – just over 30 years ago – a new home in this country cost an average of $76,000, and the median income was $17,710 per year. Compare that to 2011, when even after the recent recession, the median home price stood at $139,000, and median household income was $50,233 per year according to the US Census Bureau.Why the vast difference in prices? One word: Inflation. Like aging or weight gain, the effects of inflation are both gradual and profound. Inflation creeps up on us over time, and as we continue our normal spending and consumption habits, the almost imperceptible increase of consumer prices doesn’t seem to make a huge difference in our day to day finances – which means it is all too often vastly underestimated.But the effects of inflation are huge. And it doesn’t just affect areas like our salaries and the cost of purchasing a new home. Inflation hits us from every angle. Food prices go up, transportation prices increase, gas prices rise, and the cost of various other goods and services skyrocket over time. All of these factors make it absolutely essential that you account for the huge impacts that inflation can have on your long-term savings and ability to fund your golden years of retirement.How can you do that? Let’s first get an understanding of what inflation is and the general causes of it. We’ll then discuss how inflation can impact your investing strategy and style in order to make thoughtful and conservative long-term financial decisions.What Is Inflation?To put it simply, inflation is the long term rise in the prices of goods and services caused by the devaluation of currency. While there are advantages to inflation which I will discuss later in this article, I want to first focus on some of the negative aspects of inflation.Inflationary problems arise when we experience unexpected inflation which is not adequately matched by a rise in people’s incomes. If incomes do not increase along with the prices of goods, everyone’s purchasing power has been effectively reduced, which can in turn lead to a slowing or stagnant economy. Moreover, excessive inflation can also wreak havoc on retirement savings as it reduces the purchasing power of the money that savers and investors have squirreled away.Causes of InflationSo what exactly causes inflation in an economy? There is not a single, agreed-upon answer, but there are a variety of theories, all of which play some role in inflation:1. The Money SupplyInflation is primarily caused by an increase in the money supply that outpaces economic growth.Ever since industrialized nations moved away from the gold standard during the past century, the value of money is determined by the amount of currency that is in circulation and the public’s perception of the value of that money. When the Federal Reserve decides to put more money into circulation at a rate higher than the economy’s growth rate, the value of money can fall because of the changing public perception of the value of the underlying currency. As a result, this devaluation will force prices to rise due to the fact that each unit of currency is now worth less.One way of looking at the money supply effect on inflation is the same way collectors value items. The rarer a specific item is, the more valuable it must be. The same logic works for currency; the less currency there is in the money supply, the more valuable that currency will be. When a government decides to print new currency, they essentially water down the value of the money already in circulation. A more macroeconomic way of looking at the negative effects of an increased money supply is that there will be more dollars chasing the same amount of goods in an economy, which will inevitably lead to increased demand and therefore higher prices.2. The National DebtWe all know that high national debt in the U.S. is a bad thing, but did you know that it can actually drive inflation to higher levels over time? The reason for this is that as a country’s debt increases, the government has two options: they can either raise taxes or print more money to pay off the debt.A rise in taxes will cause businesses to react by raising their prices to offset the increased corporate tax rate. Alternatively, should the government choose the latter option, printing more money will lead directly to an increase in the money supply, which will in turn lead to the devaluation of the currency and increased prices (as discussed above).3. Demand-Pull EffectThe demand-pull effect states that as wages increase within an economic system (often the case in a growing economy with low unemployment), people will have more money to spend on consumer goods. This increase in liquidity and demand for consumer goods results in an increase in demand for products. As a result of the increased demand, companies will raise prices to the level the consumer will bear in order to balance supply and demand.An example would be a huge increase in consumer demand for a product or service that the public determines to be cheap. For instance, when hourly wages increase, many people may determine to undertake home improvement projects. This increased demand for home improvement goods and services will result in price increases by house-painters, electricians, and other general contractors in order to offset the increased demand. This will in turn drive up prices across the board.4. Cost-Push EffectAnother factor in driving up prices of consumer goods and services is explained by an economic theory known as the cost-push effect. Essentially, this theory states that when companies are faced with increased input costs like raw goods and materials or wages, they will preserve their profitability by passing this increased cost of production onto the consumer in the form of higher prices.A simple example would be an increase in milk prices, which would undoubtedly drive up the price of a cappuccino at your local Starbucks since each cup of coffee is now more expensive for Starbucks to make.5. Exchange RatesInflation can be made worse by our increasing exposure to foreign marketplaces. In America, we function on a basis of the value of the dollar. On a day-to-day basis, we as consumers may not care what the exchange rates between our foreign trade partners are, but in an increasingly global economy, exchange rates are one of the most important factors in determining our rate of inflation.When the exchange rate suffers such that the U.S. currency has become less valuable relative to foreign currency, this makes foreign commodities and goods more expensive to American consumers while simultaneously making U.S. goods, services, and exports cheaper to consumers overseas.This exchange rate differential between our economy and that of our trade partners can stimulate the sales and profitability of American corporations by increasing their profitability and competitiveness in overseas markets. But it also has the simultaneous effect of making imported goods (which make up the majority of consumer products in America), more expensive to consumers in the United States.
Valli Nachiappan
Inflationary gap and deflationary gap
Difference between inflationary gap and deflationary gap. Excess and deficient demand situation in inflationary gap and deflationary gap
Siddharth Bhatt