Economics is the social science that analyzes the production, distribution, and consumption of goods and services.

Monday, 3 October 2011

Typed of inflation

Type of inflation

  • Inflation is serious problem and abundant giving effect in the value of national income. It caused by change in aggregate demand or change in aggregate supply. Inflation could be categorized into demand pull-inflation, cost push inflation, profit inflation and currency inflation. 

A. Demand pull-inflation

  • Demand pull inflation is inflation which occur consequence of the rise in aggregate demand (AD).
  • There are many factors lead to aggregate demand increase such as rise in income, rise in wages of labor, decreasing in loan interest rate and so on. 
  • Increasing in aggregate demand would result in price increase. When prices increasing continuously until reach full employment level, then demand pull inflation were occur. 

B. Cost push-inflation

  •  Cost-push inflation is an inflation that occur due to high increase in the cost of production, which caused by increase in the cost of production factor. For example, the price of drink can rise up as a result of increasing in sugar price. 
  • The manufacturers are tend to increase their price to protect their profitability so it won’t be decrease. This situation can lead to demand of higher income among working household to meet their expenditure increase due to increase in prices. If their application is successful, production cost will increase and further manufacturer on the other hand will increase their price. General Price level will increase again.  Then, the inflation occur.

C. Profit push-inflation

 This inflation is caused by greedy producers hide the stock-pile to get the higher profit. If the producers of certain commodities have monopoly or near monopoly power in the market, they fix up higher profit margins arbitrarily without any increase in other elements of cost. When a few powerful firms increase the profit margins, the higher profit margins, thus inflate the price level.

D. Currency inflation

Currency inflation is caused by no control in money supply. It will cause the excess in money supply. Excess money supply will result in too much money chasing after too few goods. The society will get the more money and the level of consumption will increase. When the consumption increases, the total demand also will increase. It causes the producers to increase the price. So, the inflation will be occurring.