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Economics: Inflation and its types

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Inflation is a rise in the general level of prices of goods and services in an economy over a period of time

Types of Inflation:

Demand pull inflation: This type of inflation occurs when total demand for goods and services in an economy exceeds the supply of the same.

Cost-push Inflation: If there is increase in the cost of production of goods and services, due to increase of wages and raw materials cost, there is likely to be a consequent increase in the prices of finished goods and services.

Stagflation: It is a situation in which the inflation rate is high and the economic growth rate is low.

Reflation: It is the act of stimulating the economy by increasing the money supply or by reducing taxes. It is an act of pumping money in the market to increase the circulation so that economy can be stipulated again.

Disinflation: It is a decrease in the rate of inflation – a slowdown in the rate of increase of the general price level of goods and services in a nation’s gross domestic product over time.

Deflation: It is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate).

Hyper inflation: It is the extremely rapid escalation of prices (typically more than 50% per month) for goods and services.

How to Measure Inflation:

CPI(Consumer Price Index): A consumer price index (CPI) measures changes in the price level of consumer goods and services purchased by households or consumer.

Wholesale price index: The Wholesale Price Index or WPI is the price of a representative basket of wholesale goods.