Inflation, Deflation, Hyperinflation, Stagflation, Reinflation and Disinflation

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Inflation, Disinflation and Deflation

Inflation, Disinflation and Deflation

Inflation, Disinflation and Deflation

  • Inflation – increase in price across economy & money losing its value, savings decrease, It will fall the investment and aggregate demand until the economy will reach the equilibrium. Buy smaller good due to higher price.

  • Demand pull inflation when Demand > Supply

  • Cost Push Inflation when higher cost of production decreases supply. Demand constant and price increases. cost push inflation may occur in case of an inelastic demand curve where the demand cannot be easily adjusted according to rising prices.

  • Deflation – decrease in price across economy. Rate of inflation below 0% or negative rate of inflation. Increase in real value of money relative to goods and services. Fall in aggregate demand of goods and services or lack of money. Leads to less production and less investment. (control by injecting capital)

  • Disinflation – slowdown in the rate of inflation

Stagflation, Reinflation, Hyperinflation

  • Stagflation – inflation + high unemployment + slow economic growth – Stagnation in economy

  • Economy does not grow but prices grow in 1970s – oil price rise – inflation

  • Avoid by fiscal policy, healthy growth and check inflation – sinking economy and runaway inflation

  • Reinflation – expand output and curb effects of deflation. Reduce tax, change money supply & lower interest rate – stimulate measures to stop deflation

  • Hyperinflation – very rapid increase in price level (Bolivia -1985 – 38,000% increase) – controlled by printing more money.

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