Department of Economics

Kurukshetra University
Kurukshetra
Topic :- INFLATION
Submitted to Dr. Archana Chaudhary

Submitted by Julie, Kajal, Ankita

Class :- Masters in Business Economics ( 2nd
sem )
Roll.No. :- 02, 01, 04 (respectively)
Session :- 2023-2025
 INTRODUCTION
• Rise in general price level of the good
and services in an economy during a
period of time.

• Fall in the purchasing power of money.

• Can occur either due to the increase in

the demand or decrease in the supply of
goods and services.
FACTORS AFFECTING DEMAND FOR GOODS OR SERVICES

• Increase in money supply in the economy

• Reduction in saving or taxation

• Increase in public expenditure by goverenment

• Cheap monetary policy

• Black money
 FACTORS AFFECTING SUPPLY OF GOODS OR SERVICES
• Shortage of factor of production

• Increase in exports

• Natural disaster

• Artificial scarcities

• Law of diminishing returns

 CREEPNG INFLATION
{<3%/annum}

WALKING INFLATION
{(3% - 10%)/annum}
INFLATION
RUNNING INFLATION
{(10% - 20%)/annum}

HYPERINFLATION
{(20% - 100%)/annum}
 INFLATIONARY GAP
The difference between the prevailing GDP in the economy and the potential
GDP i.e. the GDP when the economy operates at full employment.

This gap is considered inflationary only if the current GDP is greater than the
potential GDP.

Inflationary gap = current GDP - potential GDP

 CURE OF INFLATIONARY GAP

• By increase in saving

• By raising the value of available output

• By increasing taxes

• By reducing goverenment expenditure

 TYPES OF INFLATION

1. Demand pull inflation

2. Cost push inflation

3. Demand shift inflation

 DEMAND PULL INFLATION

When demand for goods or services rises faster than the supply of those goods
and services.
 CAUSES OF DEMAND PULL INFLATION
• A growing economy

• Increasing export demand

• Inflation expectations

• More money in the system

• Increase in goverenment spending

 COST PUSH INFLATION
When the price of thefinal good increases due to the increase in the price of
wages or other raw materials.
 CAUSES OF COST PUSH INFLATION

• Higher prices of inputs

• Increase in wages

• Natural disaster

• Goverenment regulations ( Increase in taxation )

• Declining productivity
 DEMAND SHIFT INFLATION

• This type of inflation is associated with the name Charles Schulz.

• He pointed out that the wages and prices are flexible in upward in response
to the excess demand but they are rigid downward.

• The increase in the prices in the excessive demand sectors will lead to the
increase in the prices in the deficient demand sectors through the increase in
the prices of raw materials and wages.
 INFLATION

OPEN SUPRESSED
INFLATION INFLATION
 OPEN INFLATION
When Government does not attempt to restrict inflation, it is known as open
inflation.

It leads to corruption, black marketing and artificial scarcity.

SUPRESSED INFLATION

When government prevents price rise through price controls, rationing, etc., it
is known as Suppressed Inflation.

It is also known as REPRESSED INFLATION.

 INFLATIONARY SPIRAL
INFLATION

HIGHER WAGES
LEADS TO THE HIGHER PRICES OF
HIGHER PRICES OF CONSUMER GOODS
CONSUMER GOODS

HIGHER DEMAND OF
WAGES
 MEASURES TO CONTROL INFLATION

• Monetary measures

• Fiscal measures

• Other measures
 MONETARY MEASURES

• Credit control :-
By incresing rate of interest
By selling goverenment securities
By raising the reserve ratio

• Demonetisation of currency

• Issue of new currency

 FISCAL MEASURES
• By reducing unnecessary expenditure

• By increasing taxes

• By increase in savings

• Stop repaying the public debt and repay it in some future

 OTHER MEASURES
• By increasing production

• Price control

• By rationing

• By applying rational wage policy

 EFFECTS OF INFLATION

1. Effect on redistribution of income

2. Effect on production

3. Other effects
 EFFECTS ON REDISTRIBUTION OF INCOME

• During inflation, debtors gain and creditors loses.

• Fixed salaried people.

• Wage earners

• Equity holder or investors gain during inflation.

• Businessman gains during inflation.

THANK YOU