1. AS Economics
PRESENTATION
ON
INFLATION
Priyanka Harjai
Tutor2u &
Mrs G

2. INTRODUCTION
 inflation is a rise in the
general level of prices of
goods and services in an
economy over a period of time.
 inflation also reflects an
erosion in the purchasing
power of money
 Inflation's effects on an
economy can be positive or
negative.
 The rate of inflation is
measured by the annual
percentage change in the
level of prices as measured
by the consumer price index.
Tutor2u & Mrs G

3. CAUSES OF INFLATION
 It can be divided into two broad categories:
a) quality theories of inflation
b) quantity theories of inflation
 The quality theory of inflation rests on the
expectation of a seller accepting currency to be
able to exchange that currency at a later time for
goods that are desirable as a buyer
 The quantity theory of inflation rests on the quantity
equation of money, that relates the money supply,
its velocity, and the nominal value of exchanges.
Tutor2u & Mrs G

4. MEASURING INFLATION
 Inflation is usually estimated by calculating the inflation
rate of a price index, usually the Consumer Price Index.
 The Consumer Price Index measures prices of a
selection of goods and services purchased by a "typical
consumer“
 The inflation rate is the percentage rate of change of a
price index over time.
 Producer price indices(PPIs)
 Commodity price indices
 Core price indices
Tutor2u & Mrs G

5. TYPES OF INFLATION
 Demand-pull Inflation
 Cost-push Inflation
 Pricing Power Inflation
 Sectoral Inflation
Tutor2u & Mrs G

6. EFFECTS OF INFLATION
 production
 on Income
Distribution
 Consumption And
Welfare
 Foreign Trade
 Social and
Political Effects
 Manufacturers
Tutor2u & Mrs G

7. Tutor2u & Mrs G

8. NEGATIVE EFFECTS OF INFLATION
Hoarding
Social unrest and revolts
Hyperinflation
Allocative efficiency
Shoe leather cost
Menu costs
Business cycles
Tutor2u & Mrs G

9. Costs and Consequences of Inflation
 Money loses its value and people lose confidence in
money as the value of savings is reduced
 Inflation can get out of control - price increases lead to
higher wage demands as people try to maintain their
living standards. This is known as a wage-price spiral.
 Consumers and businesses on fixed incomes lose out
because the their real incomes falls - employees in poor
bargaining positions lose out
Tutor2u & Mrs G

10. MEASURES TO CONTROL INFLATION
 Monetary policy
 Fixed exchange rates
 Gold standard
 Wage and price controls
 Cost-of-living allowance
Tutor2u & Mrs G

11. Tutor2u & Mrs G

12. Thank you
Tutor2u & Mrs G