Answer to Question #26869 in Macroeconomics for charles

Question

1.Reasons for inlation?
2 main causes of inflation?
3.measurements of inflation?

Answer 1

In economics, inflation is a rise in the general level of prices of good sand services in 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 within the
economy. A chief measure of price inflation is the inflation rate, the
annualized percentage change in a general price index (normally the consumer
price index) over time.

Reasons:
1. Increase in Demand and fall in supply causes rise in prices.
2. A Growing Economy has to pass through Inflation.
3. Lack of Competition and Advanced Technology (increases cost of production
and rise in price)
4. Defective Monetary and Fiscal Policy (In India its fine)
5. Hoarding (when traders hoard goods with intention to sell later at high
prices)
6. Weak Public Distribution System
Causes:
1. Demand pull inflation
2. Cost Push Inflation
-The Labor Market
-Import prices
-Raw Material Prices
-Profit Push Inflation
-Declining productivity

Measurements:
The inflation rate is widely calculated by calculating the movement or change
in a price index, usually the consumer price index. The consumer price index
measures movements in prices of a fixed basket of goods and services purchased
by a "typical consumer". The inflation rate is the percentage rate of
change of a price index over time. The Retail Prices Index is also a measure of
inflation that is commonly used in the United Kingdom. It is broader than the
CPI and contains a larger basket of goods and services.