what is inflation? Meaning and definitions of Inflation

The crisis of currency spread over the whole world. Inflation has destroyed the economy of many countries. Sri Lanka and Pakistan are trapped in China's debt. So many African countries are seeing its effect. The war between Russia and Ukraine has compounded the problem. what is inflation

There is a possibility of war between China and Taiwan. The price of fertilizers has increased significantly. In this article, we will know what is inflation. The other way the government can control it.

what is inflation 2022

what is inflation

what is inflation? The literal meaning of the word 'Inflation' in the English language is inflation, but in practice, it is called inflation or inflation. Inflation is a situation in which the price of goods increases and the value of money falls. In other words, when there is a relatively rapid increase in the circulation of money as compared to the production of goods and services in the country, resulting in a rise in the price level and a decline in the purchasing power of money, a situation of inflation occurs. . There are two important forms of inflation- (i) demand induced inflation and (ii) cost induced inflation. Demand-induced inflation occurs when aggregate demand for goods and services at current prices exceeds their aggregate supply. This happens when the increase in money supply is not accompanied by an increase in output in the same proportion. Similarly, cost-induced inflation refers to a situation when an increase in cost results in a rise in prices.

Inflation or inflation is a general increase in the prices of various goods and services over time in an economy. When normal prices rise, there is a decrease in the purchasing power of each unit of money, that is, the number of goods or services that came before a given quantity of money decreases. The high rate of inflation or the state of inflation is very harmful to the public and works to spread poverty. Economists believe that these bad conditions arise from the excess money supply, that is, it takes birth by printing more money than the economy needs. The opposite of inflation is deflation, that is, the condition in which the prices of goods and services fall over time.

measurement of inflation

Inflation is measured by simple price coordinates. Price coordinates are the measure of changes in the average prices of goods. The base year coordinate is assumed to be 100 and in that the current year coordinate is calculated. If the current year's coordinate is less than 100, it represents a decrease in prices, and if the current year's coordinate is greater than 100, it represents an increase in prices.

due to inflation

The causes of inflation can be placed under the following heads

(A) Reasons for increasing the quantity of money

The following reasons are responsible for the increase in the quantity of money

1. Natural reason

When a country is on metallurgy, then due to the detection of silver and gold mines in the country or the production of silver and gold in excess quantity from the mines or being on the side of trade surplus or redemption or any other reason, gold in the country- The amount of silver increases. As the amount of metal increases, the amount of currency in circulation increases.

2. State's currency and credit

-related policy - In order to accelerate the pace of economic development of the country or to conduct war-expenditure, the government kept on ordering the central bank to issue a large amount of paper-currency, so that the currency in the country - Inflation is created.

3. Increase in the velocity of circulation of money

Due to the increase in the velocity of circulation of currency and credit-money, the quantity of money in the country increases and the price level starts rising.

4 deficit finance

When the government of a country does not get much income from taxes and the government needs money to run the expenditure, then the government adopts the policy of deficit budgeting. It meets the deficit in its budget by the issuance of paper currency, this creates the condition of inflation.

5. Credit Policy of Banks

If commercial banks start building up credit by reducing the number of cash reserves to be kept behind their total deposits, then the credit gets expanded and a situation of inflation arises.

effects of inflation 2022

The spread of money has a profound effect on the economy and people of the country. The following statements are important in relation to its effect- Prof. C. N. Comparing the circulation of money to a dacoit, the lawyer wrote - "Both take away someone's rights, but the only difference is that the dacoit is visible while the circulation of money is invisible; The victim of robbery is one or a few individuals at a time, whereas the victim of money-spreading is the whole society. The robber can be sent to the court of justice, while the circulation of money is legal.

1. Effect on Producer Class

This class includes farmers, craftsmen, factory owners and other producers. Due to an increase in prices in inflation, all these producers generally get profit, because the prices rise more than the cost of production and production work starts increasing.

2. Impact on Investor class

There are two types of investment class

(i) Investor

in-investment receiving fixed income receives a fixed amount or dividend on his investment. Preference shareholders and debenture holders of a public company come under the category. Fixed-income investors receive as much monetary income in the form of interest or dividends as before, while their real income decreases due to currency spread. Now they are able to get less quantity of goods and services in return for their income, thus they suffer

2 Investors receiving variable income

Equity shareholders of a public company come under this category. At the time of inflation, the profits of industries increase, as a result, it becomes possible to get dividends at a higher rate.

3. Effect on Foreign Trade During inflation

, the prices of goods in our country go to a high level, so our goods become expensive abroad and the goods of other countries become cheap in our country, as a result, import into our country one Increases exports decrease.

4. Impact on Banking and Insurance Companies

Due to increase in the monetary income of the public in the society in the period of inflation, banks and insurance companies get a the golden opportunity to develop. Bank deposits increase.

5. Decrease in savings

During the inflationary period, the value of money starts falling continuously, due to which people do not have as much faith in money as it was before inflation. So people do not take interest in saving and they start buying more things than their income instead of saving money. Thus savings are discouraged.

Measures to stop currency spread

When there is continuous currency spread in a country, when many types of measures have to be taken simultaneously to stop it, some of which are as follows

(I) Monetary measures The following monetary measures are helpful to check the spread of money

1. Tightening the currency issue rules

The government should impose strict restrictions on the withdrawal of additional new currency and reduce the amount of money. A decrease in the amount of money restricts the spread of money.

2. Increase in bank rate

To stop the spread of money, it is necessary to control the credit, for this the bank rate should be increased due to which the demand for credit becomes expensive.

3. Activities of Open Markets

Through open market activities, the government should pull the quantity of money from the market. More and more securities should be sold by the government, which reduces the currency in circulation.

There is a direct relationship between inflation and the growth rate of the money supply. Generally, the countries which print currency at high speed, there is more inflation. The faster those who print money, the faster inflation also picks up.

what is deflation

When the supply of money is less than the demand for it, the production of goods and services increases and prices fall, and the intrinsic value of money increases. This situation is called currency contraction.
Deflation, like inflation, is also an economic disease in which the price of goods becomes low and the value of money becomes high. This is the opposite of inflation.

due to deflation

1. Increase in Production

Deflation can occur even if the quantity of money and credit in the country is stable and production is increasing. Thus an increase in production can also lead to deflation.

2. Decrease in the amount of money

Deflation occurs due to a decrease in the quantity of money. Inflation occurs when the government reduces the issue of metal or paper currency, but the production of goods and services remains almost constant. Therefore, a decrease in the quantity of money is the main cause of deflation.

3. Increase in Bank Rate

When the bank rate is increased by the central bank, then commercial banks spread the least amount of credit. An increase in the bank rate reduces the amount of credit and creates a situation of deflation.

4. Tax Policy

The government collects more money by increasing the tax rate, as a result of which less and less money remains in circulation, resulting in a situation of deflation.

5. Receive loan

The government creates conditions for currency contraction even by taking loans from the public. There is a situation of taking money out of the hands of the public through debt under its control, which creates deflation.

effects of currency deflation

1. Increase in Government Expenditure

First of all, maximum possible increase in government expenses is done. The Central and State Governments of the country provide employment to maximum people by making National and Territorial Development Plans. As a result of this policy of the government, the amount of money among the people starts increasing. In order to give more success to its policy, the government resorts to insolvency management and issues more money on the basis of securities.

2. Extension of Credit

Central bank extends credit. For this work, she removes the restriction from the credit limit of the bank, gives them more credit facilities, reduces the interest rate, so that other banks get more loan facilities than that and give more amount of loan to their customers. to increase the quantity.

3. Change in Tariff Policy

Changes are made in the country's tariff policy in such a way that imports are banned and exports are encouraged. Import-related restrictions are further increased by imposing import-tax etc., but export-related restrictions are relaxed so that foreigners start buying goods of the deflation country in large quantities.

4. Specific Fiscal and Monetary Policy

By changing its financial and monetary policy, the government gives exemptions in various taxes and land rent. Withholds payment of past debts. Special financial assistance is provided to meet the loss of industries.

Inflation vs. Currency deflation

Both money expansion and currency contraction are bad because they create disparity among different sections of the society and lower the moral standard. Manufacturers, traders, industrialists, intermediaries and bookies benefit from the increase in the price of goods in currency spread and the wage earners and consumers suffer. Due to the time delay between the rise in the price level and the increase of wages, it becomes difficult for the workers to survive. Due to the constant income of the middle-class people, the people of this class get crushed due to inflation. During this period, many immoral activities like plagiarism, profiteering, prostitution etc. get encouraged. On the contrary, in currency contraction, if consumers are expected to benefit from the decrease in the price of goods, then the business conditions worsen, production starts decreasing and the problem of unemployment starts and economic growth stops. Both money expansion and currency contraction are harmful to the society

.Due to the world's food problem and more emphasis on the world's war, economic instability is coming in the world. Which is bringing many countries into a state of economic bankruptcy. Like Pakistan, Sri Lanka, and Venezuela, many countries of Africa are being forced to slow down the pace of their development due to the changing equation of the world.

At the same time, some big countries are also not able to save themselves from the economic problem. Reduce the increasing tension in the world. The problem can be reduced.