INFLATION & RELATED TERMS

INFLATION & RELATED TERMS

1. Inflation: A situation of a steady and sustained rise in general prices is usually known as inflation.

Inflation is a state in which the value of money is falling i.e. prices are rising.

2. Cost-push Inflation: It arises due to an increase in production cost. Such type of inflation is caused by

three factors: (i) an increase in wages, (ii) an increase in the profit margin and (iii) imposition of heavy

taxation.

3. Demand- push Inflation: It arises as a result of strong consumer demand. When many individuals are

trying to purchase the same good, the price will inevitably increase. When this happens across the

entire economy for all goods, it is known as demand-pull inflation

4. Deflation: Deflation is the reverse case of inflation. Deflation is that state of falling prices which occurs

at that time when the output of goods and services increases more rapidly than the volume of money in

the economy. In the deflation the general price level falls and the value of money rises.

5. Disinflation: A fall in the rate of inflation. This means a slower increase in prices but not a fall in prices

6. Recession: A period of slow or negative economic growth, usually accompanied by rising

unemployment.

7. Stagnation: A prolonged recession, but not as severe as a depression.

8. Disinflation: A fall in the rate of inflation. This means a slower increase in prices but not a fall in prices.

9. Depression: A prolonged recession in economic activity. The textbook definition of a recession is two

consecutive quarters of declining outpur. A depression is an even deeper and more prolonged slump.