Economics For Managers
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Chapter 17 : Inflation
Types Of Inflation
Sources Of Inflation
Aggregate Demand (AD) and Aggregate Supply (AS)
Demand Pull Inflation
Cost Push Inflation
Measuring Inflation
Wholesale Price Index
The Economic Impact Of Inflation
Effect of Inflation on the Distribution of
Income and Wealth
Effect of Inflation on Production
Phillips Curve
Measures To Control Inflation
Monetary Measures
Fiscal Measures
Other Measures
Chapter Summary
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Inflation is the rate of change in the overall price level
of goods and services. Different types of inflation are: creeping, running,
hyperinflation, and deflation. There are two sources of inflation, demand pull
and cost push inflation. Demand pull inflation is caused due to excessive demand
for goods and services. When aggregate demand increases, the price level also
simultaneously moves up.
Cost push inflation results from an increase in the cost of factors of
production or a decrease in the supply of goods with demand remaining the same.
Inflation is measured by the Wholesale Price Index and the Consumer Price Index.
The WPI is an indicator designed to measure the changes in the price levels of
commodities that flow into the wholesale trade intermediaries. The consumer
price index reflects the cost of living for a specific group in the population. |
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The CPI is measured on the basis of the change
in retail prices of selected goods and services (essential goods) on
which specific groups of consumers spend their money, based on their
income. Inflation affects an economy in the distribution of income
and wealth, and production. The Philips curve describes the inverse
relationship between unemployment and the wage rate.
Inflation can be controlled by monetary, fiscal and other measures.
Monetary measures include adjustments in money supply and bank
rates, open market operations and changes in reserve ratios. Fiscal
measures include control on public expenditure, taxation, public
borrowing and debt. Other measure include price control and
rationing, changes in wage policy, etc.
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