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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.
Assignment
ASSIGNMENT : INFLATION assignment MARKS : 10 DURATION : 1 week, 3 days