INFLATION

BY KIRAN

 Inflation refers to a continuous rise in general

price level which reduces the value of money or purchasing power over a period of time. An increase in the price you pay for goods. OR Price Inflation is when prices get higher or it takes more money to buy the same item.

There are different Causes of Inflation, They are:

INCREASE IN MONEY SUPPLY INCREASE IN GOVT. EXPENDITURE

INCREASE IN PRIVATE EXPENDITURE

INCREASE IN POPULATION BLACK MONEY

INCREASE IN MONEY WAGE RATES

 Material push inflation Higher Taxes Natural Calamities Living Standard of People

There are different effects of inflation on country. That includes: An increase in the inflation implies a decrease in the purchasing power of the currency. Inflation adds inefficiencies in the market. Inflation make it difficult for the companies to budget or plan long-term goals or achievements.

 Increase in production and investment: Inflation

motivates producers as their goods or services will earn more profits. adversely affected by inflation. Inflation widen the gap between rich and poor. good and services to go up. It will make the countrys export less competitive in the international market and have a negative effect on the balance of trade.

Greater Inequality of income: Poor people r more

Balance of trade: Inflation will cause the prices of the

 Businessman gains as the price of the products go

up and so does their profit. Share holder will get nice returns as business will be making more profits. Government that are in debt will also find their burden reduced.

 Wage earners will find their real wages going

down and thus lose. Pensioners usually have a fixed income and will lose. Students and unemployed people will lose. Bondholders, those who have purchases bonds from government and companies will lose.

TIME OF OCCURANCE GOVERNMENT REACTION

EXPECTATION

 Types of inflation on the basis of time (period) of

occurrence: War-Time Inflation : During a war, scare productive resources are all diverted to produce military goods and equipments. This overall result in very limited supply or extreme shortage of resources and Production and supply of basic goods slow down and can no longer meet the demand from people. Consequently, prices of essential goods keep on rising in the market

 Post-War Inflation : Inflation that takes place

soon after a war is known as Post-War Inflation. After the war, government controls are relaxed, resulting in a faster hike in prices than what experienced during the war.

Peace-Time Inflation : When prices rise during

a normal period of peace, it is known as PeaceTime Inflation. It is due to huge government expenditure or spending on capital projects of a long gestation (development) period.

 Open Inflation : When government does not

attempt to restrict inflation, it is known as Open Inflation. In a free market economy, where prices are allowed to take its own course, open inflation occurs.
Suppressed Inflation : When government prevents

price rise through price controls, rationing, etc., it is known as Suppressed Inflation. It is also referred as Repressed Inflation. However, when government controls are removed, Suppressed inflation becomes Open Inflation. Suppressed Inflation leads to corruption, black marketing, artificial scarcity, etc.

 Anticipated Inflation : If the rate of inflation

corresponds to what the majority of people are expecting or predicting, then is called Anticipated Inflation. It is also referred as Expected Inflation.

Unanticipated Inflation : If the rate of

inflation corresponds to what the majority of people are not expecting or predicting, then is called Unanticipated Inflation. It is also referred as Unexpected Inflation.

 Deflationary fiscal policy: This involves an increase in

taxes and lowering of government spending. Increasing taxes will result in lower disposable income for household and thus less consumption. Moreover, increased taxes will result in lower profits for firms and thus less investment by firms. All these factors will lower the AD in the economy. interest rates and reducing money supply. Higher interest rates mean higher loan and mortgage repayments. This will deter households and firms to borrow, leading to fall in consumption and investment respectively.

Deflationary monetary policy: It involves rising of

 It includes all those policies which aim at

improving the efficient supply of goods and services. These might include: Privatization Imparting training and improving the education level of the workforce resulting in higher skills. Increase competition in all industries by removing entry barriers, thus leading to more efficiency.

FROM ALL THOSE TYPES OF INFLATION GOVERNMENT CAN CONTROL INFLATION BY ADOPTING SOME RULES LIKE
Reduction in Unnecessary Expenditure Increase in Taxes Increase in Savings Surplus Budgets