When inflation is too high of course, it is not good for the economy or individuals. Inflation will always reduce the value of money, unless interest rates are higher than inflation. And the higher inflation gets, the less chance there is that savers will see any real return on their money.

What Is Inflation? Inflation is the decline of purchasing power of a given currency over time. A quantitative estimate of the rate at which the decline in purchasing power occurs can be reflected in the increase of an average price level of a basket of selected goods and services in an economy over some period of time.

Definition and Example of Inflation Inflation is an economic term that refers to an environment of generally rising prices of goods and services within a particular economy. As general prices rise, the purchasing power of consumers decreases. For example, prices for many consumer goods are double that of 20 years ago.

There are four main types of inflation, categorized by their speed. They are creeping, walking, galloping, and hyperinflation. There are specific types of asset inflation and also wage inflation. Some experts say demand-pull and cost-push inflation are two more types, but they are causes of inflation.

What Causes Inflation?

• A Brief Explanation of Inflation. Inflation is an increase in the price level of goods and services throughout a specific time frame.
• Growing Economy.
• Expansion of the Money Supply.
• Government Regulation.
• Managing the National Debt.
• Exchange-Rate Changes.
• The Consequences of Inflation.
• The Takeaway.

There are different types of inflations like Creeping Inflation,Galloping Inflation, Hyperinflation, Stagflation, Deflation.

Specifically, they distinguish between two broad types of inflation: cost-push inflation and demand-pull inflation.

• Cost-push inflation results from general increases in the costs of the factors of production.
• Demand-pull inflation results from an excess of aggregate demand relative to aggregate supply.

Inflation means the value of money will fall and purchase relatively fewer goods than previously. In summary: Inflation will hurt those who keep cash savings and workers with fixed wages. Inflation will benefit those with large debts who, with rising prices, find it easier to pay back their debts.

Lenders are hurt by unanticipated inflation because the money they get paid back has less purchasing power than the money they loaned out. Borrowers benefit from unanticipated inflation because the money they pay back is worth less than the money they borrowed.

Demand-pull inflation arises when the aggregate demand increases at a faster rate than aggregate supply. Cost-Push Inflation is a result of an increase in the price of inputs due to the shortage of cost of production, leading to decrease in the supply of outputs.

Cost-push inflation is the decrease in the aggregate supply of goods and services stemming from an increase in the cost of production. Demand-pull inflation can be caused by an expanding economy, increased government spending, or overseas growth.

greater scarcity of natural resources.

Definition: Cost push inflation is inflation caused by an increase in prices of inputs like labour, raw material, etc. The increased price of the factors of production leads to a decreased supply of these goods. This is inflation triggered from supply side i.e. because of less supply.

Cost-push inflation is when supply costs rise or supply levels fall. Either will drive up prices as long as demand remains the same. Shortages or cost increases in labor, raw materials, and capital goods create cost-push inflation. For example, inelastic demand occurs with gasoline.

Very low inflation usually signals demand for goods and services is lower than it should be, and this tends to slow economic growth and depress wages. This low demand can even lead to a recession with increases in unemployment – as we saw a decade ago during the Great Recession.

Which scenario is an example of cost-push inflation? An increase in workers’ wages raises the production cost of cars, and car prices rise as a result.

The resulting cost-push inflation situation led to high unemployment and high inflation ( stagflation ), which shifted the Phillips curve upwards and to the right. Stagflation is a situation where economic growth is slow (reducing employment levels) but inflation is high.

A third approach in the analysis of inflation assumes that prices of goods are basically determined by their costs, whereas supplies of money are responsive to demand. The wage earners, if dissatisfied, demand wage increases. …

Inflation means there is a sustained increase in the price level. The main causes of inflation are either excess aggregate demand (AD) (economic growth too fast) or cost push factors (supply-side factors).

Which of the following factors could cause the economy to experience​ supply-side inflation? Government laws which say that the average work week must be reduced by one hour every year. An increase in​ long-run aggregate supply cuases the price level to​ increase, and is therefore inflationary.

Summary of policies to reduce inflation

1. Monetary policy – Higher interest rates.
2. Tight fiscal policy – Higher income tax and/or lower government spending, will reduce aggregate demand, leading to lower growth and less demand-pull inflation.