2. 2/28/2021 Annual Review 2
3. Different types of inflation on
4. Demand pull inflation Meaning
5. Cost push inflation Meaning
6. Markup inflation
3. 2/28/2021 Annual Review 3
Unlimited human wants is one of the basic
economic problems. Humans always want a big
and diversified set of products as well as a host of
services for living a comfortable life. Inflation
aims to measure the overall impact of price
changes for a diversified set of products and
services and allows for a single value
representation of the increase in the price level of
goods and services in an economy over a period of
4. 2/28/2021 Annual Review 4
Crowther- Inflation is a state in which value of money is falling and
prices are rising.
ACI Day- Inflation consists of a process of rising prices.
Paul A Samuelson- Inflation is a time of generally rise in prices for
goods and factors of production.
5. 2/28/2021 Annual Review 5
DIFFERENT TYPES OF
On the basis of degree
On the basis of rate of
On the basis of rate of
6. 2/28/2021 Annual Review 6
Some other inflation
Demand pull inflation
Cost push inflation
Types of inflation on
the basis of causes
7. 2/28/2021 Annual Review 7
DEMAND PULL INFLATION
Demand pull inflation is set in motion when consumer
demand increases. when the aggregate demand for
goods and services is higher than aggregate supply,
sellers will raise prices as a result. This price hike is
called demand pull inflation. Demand pull inflation is
one of the most common causes of inflation in the
8. 2/28/2021 Annual Review 8
CAUSES OF DEMAND PULL
Increase in consumer expenditure.
Increase in money supply and bank credit i.e. Money
Increase in public expenditure i.e. Government spending.
Reduction in taxes.
Increase in population.
Increase in foreign demand for domestic goods.
10. 2/28/2021 Annual Review 10
EFFECTS OF DEMAND PULL
Demand pull inflation creates imbalance in the usual relationship between supply and demand
because production cannot keep up with consumer demand for any of the reasons outlined above
higher prices are the ultimate result.
Some other effects are:-
● Produces purchasing power of consumers.
● Increases the cost of borrowing.
● Potential impact on currency rates.
● Continued inflation growth.
● Encourages spending to avoid impact of further inflation.
11. 2/28/2021 Annual Review 11
COST PUSH INFLATION
Cost push inflation occurs when overall prices increase due to increase in the
cost of factors of production. Higher cost of production can decrease the
aggregate supply in the economy. Since the demand for goods has not
changed, the price increases from production are passed on to consumers
creating cost push inflation.
12. 2/28/2021 Annual Review 12
CAUSES OF COST PUSH INFLATION
Increase in labour cost.
Increase in interest rate.
Increase in rent.
Increase in profit margin.
Increase in raw material.
Reduction in subsidies.
Increase in indirect taxes.
Devaluation of currency.
14. 2/28/2021 Annual Review 14
EFFECTS OF COST
The inflation caused by cost push inflation is somewhat the wrong kind of inflation. Cost
push inflation is characterized by rising prices and falling real GDP.
Some other effects are:-
● Productivity level of the economy deteriorates.
● Decreases employment.
● Decline in real GDP.
● Laying off of workers.
● Fall in living standards.
15. 2/28/2021 Annual Review 15
The theory of markup inflation is mainly associated with Professor Ackley. Firms fix administrative prices
for their goods by adding to their direct material and labour costs and some standard markup which covers
profit. labour also seeks wages on the basis of fixed markup over its cost of living.This model of inflation
can lead to a stable,a rising or a following price level depending on the mark of switch firms and workers
respectively use. Increase in prices to maintain desired markup leads to increase in prices of other firms.
When consumers buy such goods, their cost of living rises.This leads in rising of wage costs.
According to Ackley, the size of the markup applied by firms and workers is a function of the pressure of
demand felt in the economy.To conclude with Ackley, " Inflation might start from an initial autonomous
increase either in business and labour markets or it may start from an increase in aggregate demand and
which first and most directly affected some of the flexible market determined prices. But however it
starts,the process involves the interaction of demand and market elements.
16. 2/28/2021 Annual Review 16
Basically inflation refers to a substantial rise in
the prices of the goods and services in the
economy. There are various causes due to which
inflation occurs in the economy. Due to its
occurrence, Inflation has various types on the
basis of degree of control, employment, inflation
rate and causes. Inflation is controlled by the
central bank in the economy through its monetary
and fiscal policies which can vary from time to