Essay on the Meaning of Inflation: Inflation and unemployment are the two most talked-about words in the contemporary society.
Meaning, Measurement and Economics essays on inflation Article Shared by Let us make in-depth study of the meaning, measurement and causes of inflation. By inflation we mean a general rise in prices.
To be more correct, inflation is a persistent rise in general price level rather than a once-for-all rise in it. Rate of inflation is either measured by the percentage change in wholesale price index number WPI over a period or by percentage change in consumer price index number CPI.
Opinion surveys conducted in India and the United States reveal that inflation is the most important concern of the people as it affects their standard of living adversely A high rate of inflation erodes the real incomes of the people.
It is therefore described as anti-poor, inflation redistributes income and wealth in favour of the rich. Thus, it makes the rich richer and the poor poorer. Above all, a high rate inflation adversely effects output and encourages investment in unproductive channels such as purchase of gold, silver, jewellery and real estate.
Therefore, it adversely affects long-run economic growth, especially in developing countries like India. Measurement of Rate of Inflation: Inflation has been one of the important problems facing the economies of the world.
Precisely stated, inflation is the rate of change of general price level during a period of time. And the general price level in a period is the result of inflation in the past. Through rate of inflation economists measures the cost of living in an economy. Let us explain how rate of inflation is measured.
Suppose Pi X represents the price level on 31st March and P represents the price level on 31st March Then the rate of inflation in year will be equal to Thus, rate of inflation during will be 10 per cent.
This is called point-to-point inflation rate. There are 52 weeks in a year, average of price indexes of 52 weeks of a year say can be calculated to compare the average of price indexes of 52 weeks of year and find the inflation rate on the basis of average weekly price levels of a year.
In both these ways rate of inflation in different years is measured and compared. It is evident from above that price level in a period is measured by a price index. There are several commodities in an economy which are produced and consumed by the people.
In India the wholesale price Index WPI of all commodities with base year price level at the end of fiscal year is used to measure rate of inflation and is widely reported in the media. In constructing the Consumer Price Index CPI the price of a basket of goods which a typical consumer, industrial worker or agricultural labourer as the case may be are taken into account.
Classical economists thought that it was the quantity of money in the economy that determined the general price level in the economy.
According to them, rate of inflation depends on the growth of money supply in the economy. Keynes who before the Second World War explained that involuntary unemployment and depression were due to the deficiency of aggregate demand, during the war period when price rose very high he explained that inflation was due to excessive aggregate demand.
Thus, Keynes put forward what is now called demand-pull theory of inflation. Demand — Pull Inflation Thus, according to Keynes, inflation is caused by a situation whereby the pressure of aggregate demand for goods and services exceeds the available supply of output both begging counted at the prices ruling at the beginning of a period.
Now, this imbalance between aggregate demand and supply may be the result of more than one force at work. But excess of aggregate demand over aggregate supply does not explain persistent rise in prices, year after year.
An important factor which feeds inflation is wage-price spiral. Wage-price spiral operates as follows: A rise in prices reduces the real consumption of the wage earners.
They will, therefore, press for higher money wages to compensate them for the higher cost of living. Now, an increase in wages, if granted, will raise the prime cost of production and, therefore, entrepreneurs will raise the prices of their products to recover the increment in cost.
This will add fuel to the inflationary fire. A further rise in prices raises the cost of living still further and the workers ask for still higher wages. In this way, wages and prices chase each other and the process of inflationary rise in prices gathers momentum.
If unchecked, this may lead to hyper-inflation which signifies a state of affairs where wages and prices chase each other at a very quick speed.
The Keynesian explanation of demand-pull inflation is important to note that both the original quantity theorists and the modem monetarists, prominent among whom is Milton Friedman, explain inflation in terms of excess demand for goods and services.
But there is an important difference between the monetarist view of demand-pull inflation and the Keynesian view of it.Inflation.
Inflation - AS Economics Inflation is a sustained increase in the general price level. Disinflation is a fall in the rate of increase in the general price level.
Deflation is a sustained decrease in the general . In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.
Inflation refers to a rise in prices that causes the purchasing power of a nation to barnweddingvt.com://barnweddingvt.com UK inflation since Definition – Inflation – Inflation is a sustained rise in the cost of living and average price level.
Causes Inflation – Inflation is caused by excess demand in the economy, a rise in costs of production, rapid growth in the money supply.
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