Inflation and Its Types free essay sample

What is inflation? In economics inflation is defined as the rise in general level of prices of goods and services an an economy over a period of time. When the general price level rises each unit of currency buys fewer goods and services. Consequently inflation also reflects an erosion in the purchasing power of money-a loss of real value in the internal medium of exchange and unit of account in the economy. It does not occur when the economy is in a crisis. * Tax inflation:Due to rise in indirect taxes,sellers charge high prices to their customers. * Wage inflation:If the increase in wages is not accompanied by the increase in output prices rise. * Development inflation:If incomes rise in the development of an economy,demand rises and hence prices rise. * Foreign trade induced inflation:This inflation can be of two types-Export boom inflation and import boom inflation. Export boom inflation occurs when considerable export causes shortage at home hence resulting in price rise. We will write a custom essay sample on Inflation and Its Types or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page If a country imports good from other countries and if the prices of those goods rises because of inflation abroad then prices of domestic products that use those imported goods also rises. * Demand pull inflation:Inflation which occurs because of rising incomes,exploding population etc. leads to aggregate demands and exceeds aggregate supply and tends to raise prices of goods and services. * Cost push inflation:When prices rise because of increase in the cost of production of goods and services it is referred to cost push inflation. * What are the causes of inflation?