Inflation: What Is Inflation?

                                                                  Causes of inflation    
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Inflation is the increase in the general cost of goods and services. Showing the percentage change in a reference period as an index is the index of inflation.

The main reason for the inflation is to increase demand and decrease in supply. Also, the increase in money supply or the low interest rates also lead to increase demand.

Causes of inflation:

It can be classified in two ways

1) Demand Pull Inflation

2) Cost push Inflation


1) Demand Pull Inflation

a) Increase in money supply

b) Increase in disposable income

c) Increase in Foreign Investments


2) Cost Push Inflation

a) Increased labor costs

b) increase indirect taxes 

c) Export growth

d) Inadequate infrastructure


Effect of Inflation

1) Financial turnaround :

Increase in inflation leads to higher profits to producer. He makes a new investment through a higher profit. For this new workers are appointed. So unemployed jobs are available. As a result, there is an increase in the income of the people and overall demand is increased. But if the price goes up too much it can have adverse effects.

2) Change in the format of the product:

During the inflation period, the production of some commodities increases rapidly. Some of them remain stable Some of them decreasing. As a result, the resources are transferred from one production area to the second production area.

3) Creditors and borrowers:

If the lender has a loss due to inflation, then the borrowers benefit.

4) Fixed pay rollers and Salaried person:

Salaries for the laborers' wage or salaried person will be stable. So they lose them.

Investor:

During the time of inflation, Get benefit  those investors who invest in share capital . However, investors who invest in securities or bonds that have no higher profit . .

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