Purchase Solution

Inflation and its Consequences

Not what you're looking for?

Ask Custom Question

1.Explain the various types of inflation and its consequences.
2.Describe the difference between inflationary gap and deflationary gap.

Purchase this Solution

Solution Summary

The solution describes Cost-push inflation, Demand pull, Interest Rate Inflation, and Sectoral inflation including their consequences. Difference between inflationary gap and deflationary gap was also discussed.

Solution Preview

Cost-push inflation

Cost-push inflation occurs when prices of raw materials increase. This occurs when businesses decide to increase their prices to boost revenue. The consequence is a general increase in the price of all commodities thereby eroding the purchasing power of the consumers.

Demand pull or excess demand Inflation

Demand pull or excess demand Inflation occurs when supply of commodities and services cannot cope up with increase in the number of buyers. This is due to the fact that the situation was never predicted to happen. This usually occurs after every occurrence of natural phenomena like typhoon, flood, tsunami. The consequence is that the value of money depreciates.

Interest Rate Inflation

Interest rate inflation affects how much a company charges for its final goods sold. If a company has to borrow money to produce the goods, the interest rate the banks charge is taken into account. Suppose a company usually borrows money at a 5 percent rate. Because of factors outside ...

Purchase this Solution


Free BrainMass Quizzes
Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.