Inflation and deflation describe changes in the general price level of an economy. Inflation is a sustained rise in the general price level, reducing the purchasing power of money. Deflation is a sustained fall in the general price level, often linked with falling demand and output. Understanding their causes, effects and control measures is important because both can harm economic stability. This topic covers types of inflation (demand-pull and cost-push), effects and policy measures to control price instability.
Inflation is a sustained increase in the general price level of goods and services over time.
Deflation is a sustained decrease in the general price level over time.
Demand-pull inflation occurs when aggregate demand rises faster than aggregate supply. Causes include:
Cost-push inflation occurs when production costs rise, shifting aggregate supply left. Causes include:
Access the complete note and unlock all topic-wise content
It's free and takes just 5 seconds
Get instant access to notes, practice questions, and more benefits with our mobile app.
Download this note as PDF at no cost
If any AD appears on download click please wait for 30sec till it gets completed and then close it, you will be redirected to pdf/ppt notes page.
Inflation and deflation describe changes in the general price level of an economy. Inflation is a sustained rise in the general price level, reducing the purchasing power of money. Deflation is a sustained fall in the general price level, often linked with falling demand and output. Understanding their causes, effects and control measures is important because both can harm economic stability. This topic covers types of inflation (demand-pull and cost-push), effects and policy measures to control price instability.
Inflation is a sustained increase in the general price level of goods and services over time.
Deflation is a sustained decrease in the general price level over time.
Demand-pull inflation occurs when aggregate demand rises faster than aggregate supply. Causes include:
Cost-push inflation occurs when production costs rise, shifting aggregate supply left. Causes include:
Positive (mild/controlled):
Negative (high/uncontrolled):
Control measures (summary):
From this topic
Causes of demand-pull inflation include:
(Any three causes can be written.)
Causes of cost-push inflation include:
(Any three causes can be written.)
Inflation is a sustained rise in the general price level of goods and services over time. It reduces the purchasing power of money, meaning the same amount of money buys fewer goods than before.
Inflation can be classified in different ways. The most important classification by cause is demand-pull and cost-push inflation.
Inflation can also be classified by speed: creeping (slow), walking (moderate), running (fast) and hyperinflation (extremely rapid).
Thus, knowing the types of inflation helps to identify causes and choose appropriate policy measures to control it.