THE CONCEPT OF INFLATION

Topic: inflation
Inflation is defined as a persistent rise in the general price level of goods and services. Inflation occurs when the volume of purchases is permanently turning ahead of production with too much money in circulation chasing too few goods.

Types of inflation
1 Demand pull inflation: Demand pull inflation occurs when customers have high purchasing power , leading to increase in aggregate demand without a corresponding increase in suoply . The factor responsible for this type of inflation my be due to population increase , increase in workers salaries and wages.
2 cost puch inflation: inflation occurs when increase in cost of production are passed on to Customers in the form of high prices of goods and services are puched up by the rising cost.
3 Herper inflation: Also know as galloping or run -away inflation occurs when a persistent inflation becomes uncontrollable and the value of money of money keeps increasing rapidly. Prices of goods and services rise at a fast rate, war, Budget etc are major causes of hyper -inflation.
4 persistent or creeping inflation: Also know as chronic inflation occurs when there is a slow but steady rise in the volume if purchasing power and fall in supply of goods and services.
Causes of inflation
1 increase in demand
2 Low production
3 war
4 increase in salaries and wages
5 High cost of production
6 population increase
7 excessive bank lending
8 industrial laundiring
9 Hording
10 Level of importation
Positive effects of inflation
1 Production in burden of dept
2 Higher tax yied
3 Higher positive margin
4 Higher output
Negetive effects of inflation
1 it discourages savings
2 increase in interest rate
3 income redistribution
4 creditor loss
5 fall in standard of living
6 discourages investment
7 Balance of payment problems .
Control of inflation
Reduction in government expenditure or surplus
Use of fiscal measures
Effective price control system
Industrialization
Increase in production
Checking the activities of hoarder
Deflation

Deflation may be defined as a continuous fall in the price level of goods and services as a result of decrease in volume of money in circulation.
Causes of Deflation
Budget surplus
It result in unemployment
Reduction in investment
It discourages imports
Increase in value of money
Control of deflation
Reduction in taxation
Use of deflict budgeting
Reduction in bank rate
Use of an open market operation.

Evaluation
What is inflation? (2marks)
Make a dichotomy between cost-push inflation and demand- puch inflation (3marks)
Explain two ways of controlling inflation (5marks)

Assignment
Please note! Assignment to be submitted next week
What effort has the government of Nigeria made to combat inflation in Nigeria? SSCE NOV 1990.