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Economics Time

In: Business and Management

Submitted By akshay03
Words 7343
Pages 30
INFLATION
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. It is, often, one of the most unwanted and misunderstood of economic phenomena. We tend to believe that the prices of commodities will, over time, rise and fall, responding to the pulls and pushes of demand and supply. An unexpected decrease in the production of a commodity will lead to increase in the price of that commodity, just as an unexpected increase in the production will cause the prices to fall (cost push). Another reason for the price fluctuations can be attributed to an unexpected increase/decrease in the demand of commodities (demand pull). These price movements are a way of signaling to consumers that they should consume less of the commodity facing shortage and more of the good in abundance and to producers to produce more of what is in short supply and less of what is available in plenty. Inflation, has little to do with these changes in relative prices of goods and services though the price fluctuations of the general price level may be accompanied by relative changes in prices as well. Government policies are often directed to smoothen these price fluctuations. For the common person, Inflation is unwanted, especially on those occasions when the rise in prices of goods is not matched by an equivalent increase in the price of labour as the prices of commodities required increases.
Inflation has been with humankind ever since we moved away from barter to the use of mediums of exchange, like paper money or precious metals. Even though controlling inflation is too difficult a task, we have developed techniques and policy interventions that can control it. Today, we don’t have to worry about our 9% inflation spiraling up to 30% or 100%, as happened in Hungary in 1946 or Germany in 1923, it is because of the

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