INFLATION

Definition of Inflation U) inflation, in ordinary language, we mean a process uf  prices, 1su auon is described as inflationary when either the prices or the supply of munch arc riving. because in practice both will rise together. In the Keynesian sense, Niue in flat ion begins when thc elasticity 01″ supply of output in response to increase in money supply has . fallen to zero or when output is unresponsive to changes in money supply. When there exist <I state of full employment, the conditions will he clearly if there is increase in the supply of  Insistence we do not subscribe to the Assisi  full employment. we can say that when money supply increase it results par tly in the increase (If output (G, P and it partly feeds the nose in prices. And  when the supply of output lags far behind, the e in panics 15 described as inflationary. In Councillor words, it  case of “too much  generally associated with  abnormal increase in the quantity of  money resulting in notional rise in prices. In  eyes invented the term ‘inflationary gap’ to describe a situation when there is “excess 01″ anticipated expenditures over the available output at  base prices.” In simple words, it is a gap between enemy incomes of the community and the available supply of output  goods and services. This has already been explained and il tratcd curlier in chapter 40. However. when discussing inflation, we are think.g of a persistent rise in prices rather than ;t oncc- in prices (lurch may. 101′ example. be brought about by a had weather leading to destruction or crops). 1 rise III prices is one or the indicators of allison rather than being its cause.