What is inflation?
 |
| Concept of inflation |
Inflation can be defined as the continuous increase in the general level of prices for a period of at least 6 months, which leads to a decrease in the real value of money.
Reasons inflation in the economy
- The general price level has risen for a long period that exceeds six months.
- Limited production elements: meaning that when there is a decrease in the number of workers or production factors that affect the production process such as raw materials, and then inflation appears as a result of the decrease in supply and the increase in demand.
- The state’s public budget deficit, which means that the state has more expenditures than revenues, a “budget deficit”, which leads to increased inflation due to external borrowing or increased printing of money.
- The emergence of a deficit in the capital of the production and operation process, which leads to the inflexibility of the production process.
- High operating costs in companies such as increasing salaries and others, which lead to inflation resulting from increased costs.
- An increase in the volume of money demand with the stability of the supply of goods and services, which leads to higher prices.
- Increasing prices in foreign markets with an urgent need for the state to import a commodity, causing imported inflation.
Types of inflation
- Creeping inflation.
- Negative inflation.
- Inflation tangent from demand.
- Creeping inflation.
- Stagflation.
- Inflation Hyperinflation.
Effects of inflation on the economy
- An increase in the money supply in the country with the rise in prices, which leads to a price hike that significantly reduces the purchasing power of money.
- An imbalance in the redistribution of income within the country, like the poor, get poorer and the rich get richer.
- Savings in banks or outside the banking sector were exposed to a sharp decline in their value, as a result of the high rate of inflation in a way that exceeds the interest rate on deposits.
Comments
Post a Comment