Above all, speculative businesses flourish during inflation resulting in artificial scarcities and, hence, further rise in prices.Again, following hyperinflation, export earn­ings decline resulting in a wide imbalances in the balance of payment account. If inflation is anticipated, peo­ple can adjust with the new situation and costs of inflation to the society will be smaller.In reality, people cannot predict accurately fu­ture events or people often make mistakes in predicting the course of inflation. It can, thus, be viewed as the devaluing of the worth of money.

Cost of pro­duction may rise due to an increase in the prices of raw materials, wages, etc.

It is commonly assumed that if inflationary tendencies nurtured by experi­enced inflation persist in future, people will now save less and consume more. The exact nature of price increases is the subject of much economic debate, but the word That is why govern­ment is then accused of causing inflation.Finally, production setbacks may result in decreases in output. Higher interest rates make borrowing more expensive, curtailing both consumption and investment, both of which rely heavily on credit. The focus is … High rate of inflation acts as a dis­incentive to long run economic growth. If this hap­pens, then the AS curve will shift to the right- ward not leftward—direction.

As a result, trans­port costs go up resulting in higher general price level.Again, CPI may be induced by wage-push inflation or profit-push inflation.

Some individuals gain be­cause their money incomes rise more rapidly than the prices and some lose because prices rise more rapidly than their incomes during inflation. Inflation Policy Rule 1 Nominal Interest Rate Policy Rule 2 Nominal Interest Rate 0.5 0.0 1.0 2 2.0 3.0 3.5 4.0 5.0 5.0 6.0 7.0 6.5 8.0 9.0 a) Sketch each of these rules on a single graph, making sure to … Open inflation may then result in hyperinflation.Inflation is mainly caused by excess demand/ or decline in aggregate supply or output. Higher wage means high cost of production. It constitutes, thus, an over­all increase in price level. Thus, DPI is caused by a variety of factors.In addition to aggregate demand, aggregate supply also generates inflationary process. For instance, increase in income leads to an increase in con­sumption spending which pulls the price level up.If the consumption spending is countered by the govern­ment via price control and rationing device, the inflationary situation may be called a suppressed one. Profit margin, however, may not be high when the rate of inflation climbs to a high level.However, speculators dealing in business in essential commodities usually stand to gain by inflation. For instance, growth of population stimulates aggregate demand. Thus, inflation is caused by the interplay of various factors. Because of anti-infla­tionary policies pursued by the govern­ment, inflation may not be an embar­rassing one. Thus, there is no strict relationship between prices and output. Lender, in the process, loses since the rate of interest payable remains unaltered as per agree­ment. In addi­tion, adjustment with the new expected infla­tionary conditions may not be possible for all categories of people. This book studies the coexistence of inflation and unemployment in a monetary union. Inflation exists when money supply exceeds available goods and services. That is why peo­ple use their money balances in buying real estate, gold, jewellery, etc. Depending on many factors, especially public expectations, the fundamental state and development of the economy, and the transmission mechanism, it is likely to result in price inflation, which is usually just called "inflation", which is a rise in the general level of prices of goods and services. Higher profit induces own­ers of firm to distribute profit among inves­tors or shareholders.Any­one earning a fixed income is damaged by in­flation. Rising costs lead to rising prices. However, an all-time record in price rise in India was struck in 1974-75 when it rose more than 25 p.c. Pages 115-126. Former is called demand-pull inflation (DPI), and the latter is called cost-push infla­tion (CPI). An increase in aggregate demand will increase both prices and output, but a supply shock will raise prices and lower output.Inflation may also lower down further pro­duction levels.

In other words, inflation may be unanticipated when people fail to adjust completely. This causes aggregate supply curve to shift leftward.It is the cost factors that pull the prices up­ward. Price level will continue to rise until aggregate demand equals aggregate supply.Keynesians argue that inflation originates in the non-monetary sector or the real sector. When debts are repaid their real value declines by the price level increase and, hence, creditors lose. Thus, we have two im­portant variants of CPI wage-push in­flation and profit-push inflation.If the speed of upward thrust in prices is slow but small then we have creeping inflation. Increase in the price of petrol by OPEC com­pels the government to increase the price of petrol and diesel. A tight monetary policy refers to central bank policy aimed at cooling down an overheated economy and features higher interest rates and tighter money supply. This creates various problems. As a re­sult, real incomes of this income group in­crease.It is argued that profit-earners gain from inflation. and 4 p.c., then we have a situation of walking inflation.

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