Macroeconomic Measurement Versus Macroeconomic Theory
This comprehensive document provides a thorough exploration of inflation, a critical economic phenomenon affecting individuals, businesses, and nations worldwide. Delving into the intricacies of inflation, the document covers its underlying causes, ranging from demand-pull and cost-push factors to ...
ECS1601 ASSESSMENT 6 SEMESTER 2 2024 (DUE 15 OCT 2024)
ECS1601 ASSIGNMENT 5 DUE 02 JULY 2024
Macroeconomics by Michael Parkin 10th edition
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Inflation
Inflation refers to the sustained increase in the general price level of goods and services in an economy
over a period of time, leading to a decrease in the purchasing power of a unit of currency.
Causes of inflation
Causes of inflation can be attributed to various factors, including:
Demand-Pull Inflation: This occurs when demand for goods and services exceeds their supply. When
demand outstrips supply, producers can increase prices, leading to inflation.
Cost-Push Inflation: This type of inflation results from an increase in the costs of production, such as
higher wages, increased raw material costs, or taxes. These increased costs are often passed on to
consumers in the form of higher prices.
Built-in Inflation: This occurs when people expect prices to rise, so they demand higher wages. When
wages increase, producers may raise prices, creating a cycle of inflation.
Monetary Inflation: Also known as “too much money chasing too few goods,” this happens when a
central bank or monetary authority prints an excess of money. This can lead to an imbalance in the
money supply and the availability of goods and services.
Supply Chain Disruptions: Events like natural disasters, geopolitical conflicts, or disruptions in global
trade can lead to shortages of key goods and services. This scarcity can cause prices to rise.
Speculative Bubbles: When asset prices, like real estate or stocks, increase rapidly due to speculation,
it can lead to an increase in the general price level.
Imported Inflation: If a country is heavily dependent on imports and the value of its currency falls
relative to other currencies, the cost of imported goods and services can rise, contributing to inflation.
Government Policies: Some government policies, like excessive deficit spending, can lead to inflation.
If the government borrows too much, it can increase the money supply, potentially leading to
inflationary pressures.
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