what is Inflation and it's causes

What is Inflation and it's causes

Definition :- Inflation is sustained increase in the general price level of goods and services in an economy overtime. it means the value of money decrease overtime so it takes more money to buy the same goods and services. 

Some more definitions of inflation

According to the neo-classical - inflation is fundamentally a monetary phenomenon. 

According to the friedman- inflation is always and everywhere a monitory phenomenon and can be produced only by a more Rapid increase in the quantity of money then output. 

There are different names have been given to inflation depending upon the rate of rise in prices. 

1.creeping inflation :- in the creeping inflation there is a sustained rise in prices of annual increase of less than 3% per annum and the rise in prices of goods and services is very slow like a snail or creeper is called creeping inflation. 

2.Walking or trotting inflation :- there is single annual inflation rate and prices rise moderately, and the rate of rise and prices of less than 10% or 3 to 6 percent per anum is called walking or trotting inflation. This is the warning signal to the government to control it before it turns into running inflation. 

 

3.running inflation:- there are rise in prices rapidly with the rate of speed 10 to 20% per annum like running of a horse is called running inflation. 

4.Hyper inflation:- there is rise in prices are very fast more than 20 to 100% per annum or at the double or triple digit is called hyper inflation. Hyper inflation is also called Runway or galloping inflation. 

In other words hyper inflation is a situation when the rate of inflation becomes absolutely uncontrollable and prices rise many times in a day. In this type of situation due to the continuous fall in the purchasing power of money, the monetary system collapse totally. 

Cause of inflation

The main cause of inflation is that when the aggregate demand exceeds the aggregate supply of goods and services. 

Some of the cause of inflation

1.  Increase in money supply 
2. Increase in public expenditure 
3. Increase in consumer spending 
4. Cheap monetary policy 
5. Increase in disposable income 
6. Expansion of the private sectors 
7. Deficit financing 
8. Black money 
9. Repayment of public debt 
10. Increase in export 
11. Shortage of factors of production 
12. Industrial disputes 
13. Natural calamities 
14. Artificial scarcities 
15. Loop sided production 
16. International factors. 

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