POLE2/4: INFLATION

INFLATION

Inflation refers to continuous rise in the general price level of commodity.

It also refers to a situation when too much money is used  to purchase a few goods

It also refers to a situation when the value of a countries currency is declining in relation to the US dollars

 TYPES OF INFLATION

Creepy / mild or gradual

This is when there is small/ slow increase in the general price level. [3%]

Moderate / forting inflation

The increase in the general price level is a single idiot; inflation rate is not fast and not slow.

Running inflation

When the prices increase at the rate of 10-20 % per year.

Galloping / hyper inflation

This occurs when there is rapid rise in the general price level, ranges from 20-200% increase

Demand pull inflation

This occurs when aggregate demand exceeds aggregate supply in conditions of full employment

Cost push inflation

This occurs when prices are pushed up by increase in cost of production

Imported inflation

As a result of importing commodities from countries affected by inflation

Expectation inflation

When prices increase people buy more of that commodity, the sellers’ increases further yet people continue buying

Monitory inflation

This occurs when there is increase in money supply

 CAUSES OF INFLATION

Increase in money supply. This may be because of printing more money

Increase in disposable income, this may be as a result of reduction in taxes

Increase in consumption when people are buying a lot say public holiday prices tend to go high.

Underground economy

Increase in population which leads to increase in demand causing shortages of commodities and in turn inflation a rise.

Shortages of factors of production like land, capital leads to shortages of commodities and finally inflation

Natural hazards like drought, pests lead to shortages resulting into inflation

Poor technology which increases cost of production and the end result is inflation

Political instability discourages production which results into shortages and inflation

Black marketing, this may be inform of hoarding commodities so as to charge high prices

THIS VIDEO IS ABOUT THE EFFECTS AND CAUSES OF INFLATION

EFFECTS OF INFLATION

Agriculturalists lose because prices of agricultural commodities tend to lay behind inflation.

Workers suffer because their salaries or wages tend to lay behind, real income and well fare falls.

The standard of living of local people falls

It discourages people from saving money and banking with financial institutions become of fear that their money would have lost value by the time they pick it.

It reduces the purchasing power of the majority since it redistributes income from the majority peasants and workers to the minority business group.

Creditors loose because they are paid back in an influenced currency. This discourages lending s

It may reduce production for exports and encourage production for local market

It leads to balance of payment problems by discouraging exports and encouraging imports

Inflation leads to rural urban migration since it becomes less profitable to grow crop in the rural areas

It undermines the external value of country currency which calls for devaluation because it makes importation of raw materials different

It leads to political unrest and demand for high wages by workers

It leads to black market and hoarding of commodities

POSITIVE EFFECTS.

It increases the profit level of business people since cost of production lies at a low or level than prices of commodities.

It makes workers and peasant workers to work hard so that they maintain their standard of living after the increase in prices

It reduces the level of unemployment since these would be a lot of money to spend which encourages investments.

It encourages business people to get leans since they expect money to have lost value by the time of payment back

It encourages people to produce food and sell in the domestic market where prices are high

SOLUTIONS [POLICY FOR INFLATION]

Currency reform should be carried out which makes money to gain the loath value

Reduce money supply and souse consumption by popularizing savings and national lottery

Government should reduce its expenditure and increase taxes so as to reduce money in the hands of the public

Production policy should provide subsidies to the producers of scarce commodities

Import and export policy: there should be limit action of exports of scarce commodities and encourages importation of such goods.

Imports from countries affected by inflation should be reduced imposing high taxes or total ban

Rehabilitation of existing factories to step up local productions as those commodities flood the market

The government should or abolish taxes on importation of raw materials.