Inflation

Inflation

1. General rise in prices in the economy

   • For example when sometimes products like food are too expensive
   • It's given by percents
     • It isn't always bad
       • But after a 5% rise business should prepare

2. Causes

   • Demand pull- inflation
     • Too much people want to buy
       • But companies don't have the capacity
         • Prices increase
   • Cost-push -inflation
     • When companies spend too much on production
       • They have to rise their prices to keep profit margins
     • Wage-price spirals and expectations

3. Effects on businesses

   • Increased costs
     • Uncertainty
       • Consumer reactions
         • International competitivness

4. Deflation

   • Effects
     • Reducing costs
     • Stagnant economy

5. How is it measured

   • 1) Representative products are put together as a "market basket"
   • 2)The price of this total basket is compred over time
   • 3) This result in an index % of the amount the prices have changed