Inflation is a rise in the general level of prices of all the things and services.It is the same as the unemployment generated by the violation of certain economic ratios at the national level.Therefore, its effects apply to all citizens of the country.This phenomenon may have different causes, depending on which there are two main kinds of it: inflation supply and demand inflation.Let us see what are these species and how they interact with each other.
Inflation demand arises when a push to increase the general level of prices give the factors on the demand side.At the same time the total supply remains unchanged.In such a situation production is not able to react to the excess cash to its increase in production.Thus, the demand begins to outstrip supply, and there are all the conditions for the rise in prices.
Among the important factors that generate demand for inflation, are the following:
- the excess of government expenditure over budgetary income, which is the cause of the deficit of the state budget;
- inflation expectations of consumers, who encouraged them to reduce savings and increase in current consumer spending;
- cheap (low interest rate on the loan) money that push households to increase consumption, and entrepreneurs - to additional investment.
Inflation proposal arises, provided that the impetus for the growth of the general price level is based on the aggregate supply that reduces the release of goods, as aggregate demand remains unchanged.That is, there are objective reasons for producers to reduce production volumes.Number of items decreases, and the number of customers remains at the same level.On this basis, the price of the goods begins to grow.
most significant factors of inflation proposals are as follows:
- a significant price increase or the exhaustion of natural energy and mineral resources - oil, coal, gas, metal ores;
- a relative price increase of labor resources as a result of the growth of wages, which is ahead of productivity growth.
Typically, demand inflation and inflation proposals intertwined, forming a so-called inflationary spiral.Its essence is as follows: demand inflation turns into inflation supply and vice versa.Jog to the first can give the increase in the deficit of the state budget when the costs exceed the tax revenues.Thus, it turns into inflation proposal because amid a general rise in prices and production resources are becoming more expensive, increasing the price of labor - wages.This leads to a reduction in production capacity of entrepreneurs and reduce the total volume of output of goods and aggregate supply.
Inflation is the most negative consequences for the national economy, the most dangerous of which is the following:
- the depreciation of money and savings;
- decrease in the purchasing power of consumers and their level of consumption;
- deepening inequality and rapid social stratification of society;
- inhibition of technical progress;
- loss rates as a market regulator.
For right choice of regulatory instruments is important to find out what causes inflation prevail - related to aggregate demand or aggregate supply.But in any case, all the anti-inflation measures are contradictory, so no guarantee for success.As they say experienced economists, inflation is easier to prevent than to restrict.
