What is inflation?

INFLATION IS DEFINED AS A SUSTAINED OR PERSISTANT INCREASE IN GENERAL LEVEL OF PRICES FOR GOODS
AND SERVICES.
IT IS MEASURED AS AN ANNUAL PERCENTAGE INCREASE .

THERE ARE SEVERAL VARIATIONS ON INFLATION.

DEFLATION:IS WHEN THE GENERAL LEVEL OF PRICES IS FALLING.THIS IS THE OPPOSITE OF INFLATION.

HYPERINFLATION:IS UNUSUALLY RAPID INFLATION.IN EXTREME CASES ,THIS CAN LEAD TO THE
BREAKDOWN OF A NATION’S MONETARY SYSTEM.
STAGFLATION:IS THE COMBINATION OF HIGH UNEMPLOYMENT AND ECONOMIC STAGNATION WITH
INFLATION.

CAUSES OF INFLATION:
ECONOMISTS WAKE UP IN THE MORNING HOPING FOR A CHANCE TO DEBATE THE CAUSES OF
INFLATION.THERE IS NO ONE CAUSE THAT ‘S UNIVERSALLY AGREED UPON,BUT ATLEAST TWO THEORIES ARE
GENERALLY ACCEPTED.

• DEMAND-PULL INFLATION
• COST –PUSH INFLATION
 DEMAND-PUSH INFLATION
THIS THEORY CAN BE SUMMERIZED AS:”TOO MUCH MONEY CHASING TOO FEW GOODS.”
 COST-PUSH INFLATION
WHEN COMPANIES COSTS GO UP,THEY NEED TO INCREASE PRISES TO MAINTAIN THEIR PROFITS
MARGINS.
COST OF INFLATION:
ALMOST EVERYONE THINKS INFLATION IS EVIL,BUT IT IS NOT NECESSARY SO…….

PROBLEMS ARISES WHEN THERE IS UNANTICIPATED INFLATION.

• IF THE INFLATION RATE IS GREATER THAN THAT OF OTHER COUNTRIES,DOMESTIC PRODUCTS
BECOME LESS COMPETITIVE.
• THE ENTIRE ECONOMY MUST ABSORB REPRICING COSTS (MENU COSTS) AS PRICE LISTS ,
LABELS,MENUS,AND MORE HAVE TO BE UPDATED.
• PEOPLE LIVING OFF A FIXED-INCOME SUCH AS RETIRES,SEE A DECLINE IN THEIR PURCHASING
POWER AND CONSEQUENTLY THEIR STANDARD OF LIVING.

FINALLY , INFLATION IS A SIGN FOR ECONOMY IS GROWING…….

INFLATION AND OUR MONETARY SYSTEM:

HOW DOES MONETARY POLICY WORK?
IT IS A POLICY WHICH IS ADOPTED BY CENTRAL BANK OF A COUNTRY TO CONTROLTHE SUPPLY OF
MONEY.
TOOLS OF MONETARY POLICY:
THESE ARE CLASSIFIED AS
• QUANTITATIVE METHODS
• QUALITATIVE METHODS
 QUANTITATIVE METHODS:
o CHANGES IN BANK RATE POLICY
o OPEN MARKET OPERATION
o CHANGES IN RESERVE RATIO REQUIREMENTS
o CHANGES IN RERSERVE CAPITAL
o CHANGES IN MARGINAL REQUIREMENTS
o RATIONING OF CREDITS
 QUALITATIVE METHODS:
o MORAL SUATION
o CONSUMERS CREDITS CONTROL
o DIRECT ACTION
o PUBLICITY
IMPACT OF INFLATION ON OUR LIVES AND SOCIETY:
 POSITIVE IMPACT
 NEGATIVE IMPACT
ROLE OF GOVERNMENT TO ELIMINATE OR
ENHANCE INFLATION:
STRICT MONETARY POLICY
OTHER PRECAUTIONARY MEASURES
DECLINE OF OUR STANDARD OF LIVES DUE TO
INFLATION:
INCREASE OF POVERTY…….
REMEDIES TO CONTROL INFLATION: