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INTRODUCTION:
DEFINITION:
Inflation has been different in different dictionaries over the ages. Dictionaries have given
different versions of definition regarding inflation. Inflation is an economic condition wherein
the price of the goods and services increase steadily measured against standard level of
purchasing power, whereas the supply of the goods andservices decline along with the
devaluation of money.When the economy of a country faces inflation it brings bad news for the
people because the supply of goodsdecreases and this scarcity causes a predicament for the
people. The definition of inflation has undergone lot of changes since 1983 when it appeared in
the dictionary for the first time. At that time inflation was thought of as acause but as time passed
by the definition and its significance changed. Economists from different schools differintheir
opinion regarding the genesis of inflation. However, it is agreed that inflation occurs due to an
unexpected risein the supply of money which causes devaluation or a decrease in the supply of
goods and services.Again, the inflation rate decreases with the increase in the production of
goods and with the decrease in the supplyof money in the market.The purview of inflation has
narrowed in the present day since only the phenomenon of increase in the price level istermed as
inflation these days. Previously, the devaluation of money was also considered to be a condition
of inflation. In the present day this phenomenon is known as a monetary inflation.Inflation is a
continuous rise in the price of goods and services. It is important to note that a rise in the price of
justone or two items does not constitute inflation; nor does a one-time rise in all prices mark an
inflationary period. Tocount as inflation, the price increases must be general throughout the
economy and must continue over time. Thehallmark of inflation is that money buys less than it
once did. A cup of coffee that may have cost a dime at mid-twentieth century may cost a dollar
some 50 years later.The government can fight inflation by restricting demand for goods and
services, usually by raising interest rates or imposing new taxes. Such measures tend to lead to
higher unemployment, which dampens demands for goods and services and, in turn, brings down
prices. Economists debate whether the cost of fighting inflation, e.g., higher unemployment and
less growth, is worth the pain. Certainly a moderate amount of inflationary price increases, in the
range of one to two percent per year, is viewed by many economists as not worth worrying
about. Inflation is measured by the government's cost of living index. The opposite of inflation is
deflation, a steady decline in the level of prices over time. A general and progressive increase in
prices; "in inflation everything gets more valuable except money"
universe (faster than the speed of light)
postulated to have
occurred shortly after the big bang ostentation: lack of elegance as a consequence of being
pompous and puffed up with vanity
the act of filling something with air
In economics, inflation is a rise in the general level of prices of goods and services in an
economy over a period of time.In physical cosmology, cosmic inflation, cosmological inflation
or just inflation is the theorized exponentialexpansion of the universe at the end of the grand
unification epoch, 1036 seconds after the Big Bang, driven by anegative-pressure vacuum
energy density. ...An act, instance of, or state of expansion or increase in size, especially by
injection of a gas; An increase in thegeneral level of prices or in the cost of living; A decline in
the value of money; An increase in the quantity of money, leading to a devaluation of existing
money; Undue ...1.The act of inflating or the state of being inflated.2.A persistent
increase in the level of consumer prices or a persistent decline in the purchasing
power of money, caused by an increase in available currency and credit beyond the proportion
of available goods andservices.
Statement of the Problem
Inflation, can our economy grow without it? What is inflation? The definition of inflation is an
abnormal increase inavailable currency and credit beyond the proportion of available goods.
Although, Websters is considered by most to be the overall best dictionary, Word Net states the
meaning of inflation a lot clearer by saying, its a general and progressive increase in prices. It
occurs when the value of goods rises faster than the value of money. The usual approximate
measure of this is the Consumer Price Index, which weigh the prices of different goods
according to importance in a typical budget and then shows how much the prices of these
goods have increased. This immediately raises some problems; for example, the weight of the
goods must change over time. The importance of computers was not measured in the price index
100 years ago. Another problem is the failure of the price index to capture changes in quality.
The quality of a good may have improved by 20%, while the price has only risen by 10%. The
consumer price index doesnt feel this should be a factor, but many would disagree. Hence,
inflation is not easy to define in practice. This should be kept in mind when discussing how to defeat
inflation. There have been numerous theories on how to defeat inflation and even some theories on
whether, or not, it should be defeated at all. Some say that inflation is not only expected, but also
often, needed. Economists believe that in order for the economy to expand and grow, there has to
be some level of inflation. Therefore, the opposite holds true as well. If you want to lower
inflation, you have to accept a semi-standard economy. They call this tradeoff the Phillips Curve.
The Phillips Curve is thought to be the proper way of balancing economic growth and
inflation. For this reason the Federal Reserve is always looking for the perfect equilibrium at which we can
maximize our economic growth while keeping inflation as minimal as possible. They do this by
increasing and decreasing interest rates. Although, Economists and the Federal Reserve abide by the
Phillips Curve as a general rule for not letting inflation get out of hand, it has been proven many times in the
past that it is possible to have a very healthy and prosperous economy without raising inflation at
all. There are even examples of inflation declining while the economy booms. As Steve Forbes,
of Forbes magazine, said, Prosperity is not the fueler of inflation. For example, in the 1980's, when the
economy was at a major high, inflation fell from 13% all the way to 4%. Thats an incredible drop for such a short
period of time.