Inflation BSA2-2 ( Salmorin, Galon, Tendras)

INFLATION

DEFINITIONS KINDS/CAUSES OF INFLATION

POSITIVE EFFECTS OF INFLATION

NEGATIVE EFFECTS OF INFLATION

STATISTICS INFLATION RATE & PURCHASING POWER of the PESO

SOLUTIONS

DEFINITIONS

Inflation is a sharp sudden increase of money or credit or both without a corresponding increase in business transaction.

-Webster’s Dictionary

DEFINITIONS

Inflation is defined as a sustained increase in the general level of prices for goods and services.

-STANLIB

DEFINITIONS Inflation is the long term rise in the prices of goods and services caused by the devaluation of currency. 

- MONEY CRASHERS

DEFINITIONS Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling.

- INVESTOPEDIA

DEFINITIONS Inflation is an economic condition wherein the general price level persistently rises as the value of money decreases.

“Inflation means that your money won’t buy as much today as you could yesterday. ”

- ECONOMIC.HELP

KINDS/CAUSES OF INFLATION1. Cost-push Inflation.

caused when costs of production (e.g., wage rates and raw materials) are pushed upward significantly.

KINDS/CAUSES OF INFLATION2. Demand-pull Inflation.

the aggregate demand simply overwhelms aggregate supply.

"too much money chasing too few goods". In other words, if demand is growing faster than supply, prices will increase.

KINDS/CAUSES OF INFLATION

3.Structural Inflation.

takes place when productivity in a major producing sector in the economy is impaired.

POSITIVE EFFECTS OF INFLATION

Moderate inflation enables

adjustment of wages. 

Inflation enables adjustment of

relative prices. 

Inflation can boost growth.

High inflation tends to wipe out

debt.

NEGATIVE EFFECTS OF INFLATION

Inflation tends to discourage

investment and long term economic

growth.

Inflation can make an economy

uncompetitive.

Reduce value of savings.

Unemployment

Business uncertainty

NEGATIVE EFFECTS OF INFLATION

Hoarding

Social Unrest

Income redistribution

Negative real interest rates

Cost of borrowing

Risks of wage inflation

Business competitiveness

STATISTICS

INFLATION RATEInflation rate • the annual rate of change or year-on-year change in consumer price index (CPI).

PURCHASING POWER OF PESO Purchasing Power of Peso (PPP)

• is the amount of goods and services that one peso can buy at present.• the value of the peso in the base period.

SOLUTIONS Monetary Policies

o control the rise in demand, by increasing the rates of interest and reducing the supply of real money.

Fiscal Policiesoreduction in the Demand-Pull Inflation, in

terms of increasing unemployment and slackening the economic growths.

Exchange Rateso increasing the rates of interest or buying

money through the central bank interferences in the foreign exchange markets.

SOLUTIONS Wage Control

o limiting wage growth can help to moderate

inflation.

Monetarism

o seeks to control inflation through controlling the

money supply.

Supply Side Policies

oenable the economy to become more competitive

and help to moderate inflationary pressures.