SS2 Third Term Economics Lesson Note – Inflation

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WEEK 6

TOPIC:  Inflation

CONTENT:

• Meaning of Inflation
• Types of Inflation
• Causes of Inflation
• Effects of Inflation
• Control of Inflation

Sub-Topic 1: INFLATION

Inflation can be defined as a high and persistent rise in the general price level. It is defined as a condition where there is rise in the average level of price.  It is a situation in which supply is not keeping pace with demand and a situation in which too much money is chasing too few goods.

While anything that tends to increase price is termed inflation and anything that tends to reduce price is termed deflation, it is not every price increase that is inflationary. A ‘’Once and for all Increase ‘’ in the price level may not be tantamount to inflation.

Types of Inflation

1. Demand Pull Inflation: It is usually caused by excessive demand with supply persistently falling short of it. This may be brought about by increase in personal incomes, increase in wages as well as increase in government expenditure, etc. The resultant excess demand leads to an increase in the price level.
2. Cost Push Inflation: The cost pull inflation occurs when there is continuous rise in the cost of production. The increase in the cost can be in the form of higher wages demanded by workers or an increase in the cost of raw-materials. When such increase in costs is passed on to the consumers in the form of higher prices, the we have cost push inflation.
3. 3. Hyper Inflation: also known as galloping or run-away inflation. It occurs when there is great increase in government spending. The prices of goods skyrocket and money rapidly loses its value and becomes worthless.
4. Chronic Inflation: This type of inflation between 20 and 100% and it goes on for several decades. The danger there is that this inflation results to a situation where people spend much money to buy tangible goods such as houses.
5. 5. Creeping Inflation: Inflation in a country is described as creeping when it is persistent but kept relatively low. Sometime, it is described as creeping and sometimes it is described as trotting.

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