Definition of Inflation, types and causes

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Inflation:-

 The rate at which the cost of goods and services rises over a given period of time is known as inflation.  

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A percentage increase in the general price level of goods and services is known as inflation. In other words, it increases your cost of living.


Types of inflation:-

There are two main types of inflation.

1- Cost push inflation- when a rise in prices is caused by a rise in the cost of production.

2- Demand pull inflation - when a rise in prices caused by rising aggregate demand and firm pushing up prices due to the storage of goods.

Types of Inflation on the basis of how fast price increases -

● Creeping inflation -  when the rate of interest slowly increases overtime that is from 1 to 4% a year.

● Walking inflation or moderate inflation - when the rate of inflation increases less than 10% that is from 2 to 9 % a year.

● Running inflation -  when rate of inflation increasing between 10 to 20% a year.

● Hyperinflation -  when the rate of inflation increases suddenly that is above 1000% a year.


Causes of Inflation:-

1- Increase in public spending 

2- Deficit Financing 

3- Population Growth

4- Genuine Shortage

5- Tax Reduction

6- Exports 

7- Price-rise in the International Markets

8- Non-economic Resources

9- Imposition of Direct Taxes

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