Economics-For Managers


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Economics For Managers, Management Textbook, Workbook

Macroeconomics : Inflation : Chapter 17

Inflation is the rate of change in the overall price level of goods and services. Different types of inflation are: creeping, running, hyperinflation, and deflation. There are two sources of inflation, demand pull and cost push inflation. Demand pull inflation is caused due to excessive demand for goods and services. When aggregate demand increases, the price level also simultaneously moves up.

Cost push inflation results from an increase in the cost of factors of production or a decrease in the supply of goods with demand remaining the same. Inflation is measured by the Wholesale Price Index and the Consumer Price Index. The WPI is an indicator designed to measure the changes in the price levels of commodities that flow into the wholesale trade intermediaries. The consumer price index reflects the cost of living for a specific group in the population.

The CPI is measured on the basis of the change in retail prices of selected goods and services (essential goods) on which specific groups of consumers spend their money, based on their income.

Inflation affects an economy in the distribution of income and wealth, and production. The Philips curve describes the inverse relationship between unemployment and the wage rate. Inflation can be controlled by monetary, fiscal and other measures. Monetary measures include adjustments in money supply and bank rates, open market operations and changes in reserve ratios. Fiscal measures include control on public expenditure, taxation, public borrowing and debt. Other measure include price control and rationing, changes in wage policy, etc.

Chapter 17 : Overview

Types Of Inflation
Sources Of Inflation
Aggregate Demand (AD) and Aggregate Supply (AS)
Demand Pull Inflation
Cost Push Inflation

Measuring Inflation
Wholesale Price Index

The Economic Impact Of Inflation
Effect of Inflation on the Distribution of Income and Wealth
Effect of Inflation on Production

Phillips Curve
Measures To Control Inflation
Monetary Measures
Fiscal Measures
Other Measures