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Present By:Noor
Hayati Binti Kardi061997
Group 15
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What is inflation?
define as rise of average prices through economy. Insimple
terms, it means that money is losing its value.based on studies,
there are six economic theories aboutcauses of inflation ,i.e,
demand-pull inflation, cost-pushinflation, quantity theory of
money, philip curve, priceexpectation, and wage-spiral. But, causes
of inflation areeasiest to explain by looking at aggregate supply
anddemand.
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If aggregate demand increases to AD1 or aggregate supply
decreasesto AS2,the price level will increases as well.
Therefore, two major factor that can cause inflation are:
d) Increases in demand
e) Increases in cost
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Increases in demand
known as demand-pull inflation.
level aggregate demand grows faster than aggregate
supply.Too much money chasing too few goods.
we can not manage to produce all goods we need.
As the aggregate demand curve shifts to the right, the price
level rises - inflation .
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In other hand, increases in aggregate demand also can bebecause
of:
b) Consumers are spending more
c) Interest rate have fallen
d) Taxes have been cut
e) Increases power of purchasing
f) Firms are investing more in the expectation of future
economicgrowth
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Increases in cost
known as cost-push inflation
cost of important goods and services are increases
cost rise too fast, companies will need to put prices up to
,maintaintheir margin.
The aggregate supply curve shifts left because of the cost
increase, thereforepushing prices up.
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there are many theoretical explanations about factorsthat can
led inflation up, especially which is related toincreases of demand
and cost.
many tools that they can use to solve inflation:
Monetary policy (increase or decrease money supply)
Fiscal policy (change the amount of taxes andgovernmental
spending)
Various control on prices, tariffs, and monopolies .
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