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

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

4. INFLATION
Can you show this????

5. TYPES

6. CAUSES
COST PUSH

7. CAUSES
DEMAND PULL

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

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

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

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

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

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

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

15. 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

16. 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

17. 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

18. 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

19. So what were our objectives?