Definition and characteristics of ’ inflation

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Definition and characteristics of ’ inflation

Definizione e caratteristiche dell'inflazione

Below is the definition and characteristics of ’ inflation

L’inflation is a process of rising prices of goods and services on the market which decreases the purchasing power of consumers.
L ’ inflation is expressed through the inflation rate which is the percentage change in prices over a period of time. But we see in detail a concrete example:
Francesca buys a handbag signed for 100 “money” (any currency) Meanwhile c ’ is an increase in inflation of ’ 3%. The week after Laura wants to buy the same handbag, However will have to pay 103 “coins” the calculation is very simple:
(100 x 3)/100 + 100 = 103

For measure l ’ inflation You can use different indexes such as:

  • consumer price index, those perceived by the seller at the time of commercial transactions between businesses
  • consumer price index, or the prices of transactions between households and businesses
  • cost of living index: taking into account the consumption of a family type

L ’ inflation has several types:

  • Creeping: slow and steady price increases, generally less than the 5% all ’ year.
  • Runaway: price increase above 20/30% per annum
  • Hyperinflation: uncontrollable increase

The main causes are as follows:

  • Excess coin in circulation: This cause we can immediately locate it in the formula of the quantity theory of money

    M x V = P x Q

M = currency in circulation V = velocity circulation of money (constant) General price level p = Q = amount of transactions (constant)

Any excess money supply affects pricing ’ so why the supply of goods and services is already at its maximum potential.

  • Excess demand: occurs when the amount of money in circulation is in excess of the goods produced.
  • Rising production costs: lead entrepreneurs to raise commodity prices, Since I don't intend to give up the profit margins.
  • Request for greater profits for entrepreneurs: develops when entrepreneurs to cope with changes of ’ economic equilibrium increase commodity prices.
  • Tax increase: increases in prices as entrepreneurs seek to transfer this cost on goods.

The possible solutions You can implement political-economic level are restrictive economic policies to avoid the ’ excess currency in circulation, the control of public expenditure, ’ containment of rising production costs and ’ application of an incomes policy to avoid demands for greater profits by entrepreneurs.

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