Page 197 - DECO402_Macro Economics

Macroeconomic Theory

Notes The word stagnation was connected to the economic literature in the decade of 1970 due to rise in oil
prices, unfavourable conditions of business, increase of labour power and rigidity in wage structure.
It is a coincidence of stagnant and inflation, where word stagnant is taken from stagnancy and word
inflation is taken from money inflation. Stagflation is also known as inflationary slump because here
along with slump, high rate of inflation is also found. Yeh sfiti utpann karti hui vastu baazar me atirek
maang ke saath ardhvyaavastha me berojgaari utpann karti hui shram ki kam maan ke kaaraN se
hai.
It is clear from the description done in this chapter that meaning of inflation for various economists
may be different in relation to the causes responsible for it. As far as final results are related, they
almost mean one, that is, increase in general price level.
An economy that tries to develop faster than the required rate of progress will have to face inflation.
When at prevalent price level, government decides to take more than resources released by the
economy then the result may be inflation. A country may suffer from inflation when various classes
of economy, in comparison to increase in productivity, try to improve their income level parts. It may
also arise if due to possibilities, demand for goods and services is increasing faster as compared to
extension of production by the economy.

Did You Know? Relation of inflation is with that increase in price level which happens after
achieving the level of full employment.

Self Assessment

Fill in the blanks:
1. Inflation is .............. and heavy increase in general level of monies after full employment.
2. During the initial stage of inflation prices ............ at very slow less rate.

22.2 Types of Inflation

Inflation is continuous and heavy increase in monies after full employment. Merely an increase of 0.2
or 0.3 percent in the price level of an economy in a year is not worth describing as inflation, because
it is not sufficient. In the same way, an year in one quarter of which piece levels rise by 2 percent and
in 2nd quarter, drop by 3 percent, increase by 4 percent in the third quarter and drop by 5 percent in
the 4th quarter then, it can be hardly described as an inflationary period. And then increase in prices
of almost all things must be experienced. Increase in price of some goods, while there is a decline in
prices of other goods will be hardly worth calling inflation.
After understanding the minute meaning of inflation, it will be important to know various types of
inflation on various bases:

1. On the basis of rate of Inflation:

On the basis of intensity of price rise, inflation may be classified in three types, i.e. (a) Creeping inflation
(b) Running Inflation (c) Hyper Inflation.
a. Creeping inflation: During the initial stage of inflation, price rise at a very slow rate. This
slow rate of money may be considered as creeping inflation. Though it is difficult to tell

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