Inflation, Deflation,

Stagflation &
Reflation
Inflation
 Meaning;
Inflation is a rise in general level of prices of
goods & service in an economy over a period of
time.

 Definition;

Crowther- defines inflation as “a state in which
the clause of money is falling i.e., prices are rising.

Prof.Coulbourn- defines inflation as “too much
of money chasing too few goods”
(1) On The Basis Of Causes
(2)Anticipated V/S unanticipated
inflation
(3)On The Basis Of rate Of
Inflation
(4)On The Basis Of degree Of
control
(5) On The Basis Of Employment
1)Demand Pull Inflation
2)Cost Push Inflation
3)Profit Induced
Inflation 4)Budgetary
Inflation 5)Monetary
Inflation 6)Multi Casual
Inflation
1) Inflation Caused by increasing in aggregate
demand.
1) Increase in money supply.
2) Increase in the demand for goods by
the govt.
3) Increase the income of various factor
of production.
Increase in cost of production.

Entrepreneurs due to their monopoly

position raise the profit margin on
goods.
Country covers the budget deficits through bank borrowings
and creating now money.
Purchasing power of community increases without a increase in
production of goods.

Inflation is caused by too rapid increase in money supply

2)Anticipated V/s
Unanticipated
Rate of inflation which majority of the individuals believe will occur.

Rate of inflation which comes as a surprise to majority of

individuals.
(1)Creeping
inflation
(2)Walking inflation
(3)Running
inflation (4)Hyper
inflation
(1) General prices level increases upto a rate of 2% per annum.
(2) It is generally considered a necessary condition of economic
growth.

The price rise is around 5% annualy.

The price increases about 8 to 10% per
annum.

(1) It starts after the level of full employment is reached.

(2) Price level rises very rapidly within a short period.
(1)Open Inflation
(2)Suppressed
Inflation
Inflationary process in which prices are permitted to rise
without being suppressed by government price control or
similar measures.

(1) Govt. makes efforts to check and control the rise in

price level through price control and rationing.
(2) Suppressed inflation results many evils such as black
marketing, hoarding, corruption and profiteering.
(1)Partial
inflation (2)Full
inflation
(1) General Price level raises partly due to an increase In
cost of Production
(2) And partly due to rise in supply of money before the
full employment stage is reached.

(1) Economy reaches the level of full employment.

(2) Increase in money supply will result in the rise in
price level without any increase in output and
employment.
Causes of Inflation
 Changes in money supply.

 Change in disposable income.


Changes in business and consumer
expenditure.

 Changes in demand of goods and

services.
Effects of Inflation

 Effect on production and employment.

 Effect on fixed income group.

 Effect on debtors and creditors.

 Effect on wage and salary earners.

 Effect on farmers.
While inflation represents
an overall upward price
movement of goods and
services, deflation acts
adversely. We take a look at
the basics of both.
 Deflation
 Meaning;
Deflation is a decrease in the general price
level of goods and services.

 It occurs when the inflation rate falls below 0%.


It increases the real value of money of a nation,
this allows one to buy more goods with same amount
of money.
Causes of Deflation
 Shift in supply & demand curve.

 Reduction in money supply.

 Technological development.


Increases in supply of goods & Decrease in supply
of money.

 Cash building.

 Fall in demand causes fall in price

Effects of Deflation

Decreasing nominal prices for goods &
services.

 Increasing buying power of cash money.

 Decreased investment.

 Benefits recipient of fixed income.

Stagflation
 Meaning;
Stagflation is a combination of Stagnation &
Inflation, a situation where an inflation rate is
high, the economic growth rate slows down, &
unemployment remains steadily high.

 Causes;
 Supply Shock
 Inappropriate macro economics policies
Effects of Stagflation
 Reduction in the value of money

 Increase in prices of goods

 High Unemployment

 Poor economic growth

 Effect on fixed income group

Reflation
 Meaning;
Reflation is the act of stimulating the economy by
increasing the money supply or by reducing taxes,
there by seeking to bring the economy back up to
the long-term trend, following a dip in the business
cycle.

 Reflation is considered to be an antidote to

deflation