Definition and characteristics of ’ inflation
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.