A general increase in the price level for goods and services INFLATION A general increase in the price level for goods and services

INFLATION Inflation is a state of disequilibrium AD > AS causing a rise in general price level.

INFLATION Can you show this????

TYPES

CAUSES COST PUSH

CAUSES DEMAND PULL

CREEPING INFLATION TYPES Prices increase to 3% or less Beneficial to economic growth Increase in AD Consumers expect P increase so buy now

WALKING INFLATION TYPES Inflation is between 3-10% Harmful to the economy Consumers buy more than they need Costs and wages increase

GALLOPING INFLATION TYPES Inflation is > 10% Havoc on economy Money loses its value Business costs Increase Wages increase Foreign investment increases

HYPER TYPES INFLATION Prices are > 50% Governments prints too much money Money loses its value Eg Germany (war) Zimbabwe 2000

TYPES STAGFLATION When the economy is stagnant There is still P increases high inflation prevails together with a high unemployment

TYPES CORE INFLATION Measures increase in everything, except food and gas/ energy Oil and energy prices are unstable Increase and decrease daily/weekly

TYPES DEFLATION Opposite of inflation Decrease in prices by > 10% p.a Business suffers Cannot cover costs Unemployment increases

SOLUTIONS Print less money Decrease the amount of money in circulation REDUCE MONEY SUPPLY PRESSURES (Inflation caused by too much money in circulation) What can be done? Print less money Decrease the amount of money in circulation

WHAT ABOUT THESE? MONETARISTS? KEYNESIANS According to classical economists, the increase in demand is caused by an increase in money supply According to Keynes it is increase in total spending & not in money supply which is responsible

SOLUTIONS Increase interest rates Increase taxes REDUCE DEMAND PRESSURES (When inflation is caused by high demand) What can be done? Increase interest rates Increase taxes

SOLUTIONS REDUCE COST PUSH PRESSURE Decrease wage increases (When inflation is caused by high costs) What can be done? Decrease wage increases Keep prices of gas and electricity stable Increase value of currency

So what were our objectives?