Types

of
inflati
on
 Types Of Inflation
due to causes:

1. Demand Pull Inflation

2. Cost Push Inflation
 Demand Pull Inflation

The demand for goods and services increase

and production remains same or does not
increase as fast.

The excess demand results in prices being

pulled up.
 Demand Pull Inflation

The demand pull inflation

occurs when total demand
for goods and services
exceeds the total supply.

This type of inflation

happens when there is an
inflationary gap.
 Cost Push Inflation

The cost push inflation

is
caused by
an increase in the cost
of production.
Increased costs push
up the price level.
 Hyperinflation:

An out of control inflationary

spiral is known as Hyperinflation.
HYPERINFLATION

DISINFLATION STAGFLATION
Pricing Power Inflation: Pricing power
inflation is more often called as administered
price inflation. This type of inflation occurs
when the business houses and industries
decide to increase the price of their respective
goods and services to increase their profit
margins.
15
Inflationary gap
Aninflationary gap, in economics, is the
amount by which the actual gross
domestic product exceeds potential full-
employment GDP. It is one type of
outputgap, the other being a
recessionarygap.
Adjusting to Inflationary Gap: Inflation
Inflationary gap
over employment
wage
AS shifts inward
Y, P
Again, it is a self-correcting mechanism

18
 FIGURE 26-6
FIGURE 26-6 The
The Elimination
Elimination of
of
an
an Inflationary
Inflationary Gap
Gap
Potential
GDP S1

D
S0

Price Level F
E
B

S1
D
Inflationary
S0 gap

Real GDP

Copyright 2003 South-Western/Thomson

Copyright 2003
Learning.
Southwestern/Thomson
All rights reserved.Learning All rights reserved.