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Inflation in Definition

Inflation is a depreciation of paper money, which manifests itself in the form of growth of prices for goods and services not provided by an increase in their quality.

The main sources of inflation:

  • Increase in nominal wages.
  • The increase in raw material and energy prices.
  • The increase in taxes.

There are two types of inflation: demand-pull inflation and cost-push inflation.

Demand-pull inflation is when supply and demand balance is disturbed on the demand side. It happens at full employment when the amount of wages is increasing; there is an excess aggregate demand, which pushes prices up. To overcome this type of inflation, the state needs to intervene.

Cost-push inflation is an increase in production costs (due to the growth of wages and due to rising prices of raw materials and energy). It makes the price of goods and services grow. The reduced supply leads to a reduction in output and employment, i.e. to recession and further reduces of costs and the gradual exit from crisis.

Like any other multi-factor economic process inflation has a number of consequences:

  • The difference in estimates between cash flow and cash reserves. All the money supply (deposits, loans, account balances, and others) become worthless. Securities also are devaluated. The problem of money emission is sharply aggravated.
  • Spontaneous, uncontrolled redistribution of income: during inflation lenders, sellers, exporters, employees cost businesses are losing, while debtors, buyers, importers, employees of the real sector are benefitting.
  • All the main economic indicators (GDP, profitability, interest, etc.) are getting distorted.
  • Rising of prices is accompanied by falling exchange rate of the national currency.

The effect of inflation on the economic life can be viewed in two ways: the impact on the redistribution of national income and the amount of national production.

It is extremely difficult to fight inflation. It would seem that freeze of prices or introduction of some form of regulation of certain kinds of prices might help. Unfortunately, this method can only help for a short time. Freezing of prices will respond quickly increasing scarcity of certain goods and will aggravate the inflation even more.

Types of anti-inflation policy:

  • Adaptation measures (adaptation to inflation) – indexation of income, control over the level of prices.
  • Liquidation (anti-inflation) measures – the active reduction of inflation through economic recession and rising unemployment.

If these measures do not help, then the state will be forced to carry out a currency reform.

Inflation is a depreciation of paper money, which manifests itself in the form of growth of prices for goods and services not provided by an increase in their quality.

The main sources of inflation:

  • Increase in nominal wages.
  • The increase in raw material and energy prices.
  • The increase in taxes.
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Assignment ID
100000409
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CREATED ON
July 3, 2016
COMPLETED ON
July 4, 2016
Price
$24
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Essay Example Comments
ingMario8884
July 11, 2016
ingMario8884
I have tried 3 writers here and this guy is the best one. although he did not have a wide knowledge of the topic he made an effort to research about and met the deadlines.
seansegui071304
June 1, 2016
seansegui071304
Needed a little more work/effort in the sections towards the end but other than that good job.
seansegui071304
June 1, 2016
seansegui071304
Great job, well put.