Explain Different Concepts Of Inflation.


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Haider Imtiaz answered
Inflation means sharp upward movement in the price level. According to Coulborn inflation means "Too much money chasing too few goods" Keynes says "Any rise in the price level after the level of full employment has been achieved". When output is unresponsive to change in money supply, inflation is generally associated with the abnormal increase in the quantity of money resulting in the abnormal rise in the prices.

Different concepts of Inflation:
1. Deflation: It is just opposite to inflation. Deflation is said to exist when there is persistent downward movement in the price level. In other words deflation, therefore, can be called falling prices and not low prices.

2. Reflation: Reflation is a moderate degree of controlled inflation. Cole has defined it as inflation deliberately undertaken to relieve a depression. When price has come down abnormally so low that govt. activity ceases to be profitable. The currency authority may adopt measures to put more money into circulation with the view to raising prices. This is one of the remedies to relieve depression.

3. Stagflation: Stagflation is derived from two words stagnant and inflation. There is an increase in price level and decrease in the output and employment. Rise in prices and stagnant inflation run side by side. The rising costs of inputs push the prices upwards causing increase in price level without a growth in output and reduction in unemployment. In this situation, the prices are rising but at the same time output and employments are coming down, this situation is called stagflation.

4. Disinflation: Refers to the situation when an attempt is made to bring down the prices moderately from high level. So the govt. adopts various kinds of monetary and facial measures to bring the prices without causing unemployment in the country. We call it disinflation.

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