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The economies of different countries change in each period of time and are constantly experiencing many ups and downs. One of the important concepts in macroeconomics is to study and measure the rate of inflation in a country.
How to measure inflation is possible using the tool of inflation indicators or inflation indicators, which is different in different countries depending on economic parameters and their characteristics.
Inflation is simply described as a comprehensive, stable, and widespread increase in the weighted average of prices in the economy. In other words, inflation is an uncontrolled and continuous increase in the general level of prices.
Inflation occurs in different ways in each economy according to different times and conditions. In this section, we want to examine the different types of inflation and the reasons for its occurrence.
Whenever in a society the total demand exceeds the total supply, the excess demand over the current supply causes the general level of prices of goods and services to rise. Thus, the economy will face demand inflation. The supply of goods and services may be in short supply as the economy approaches employment or makes full use of existing capacities, and may not be able to respond quickly to the growing demand. An increase in the general level of prices in such a situation will not be very effective in increasing the incentive to increase production and supply, and in fact, can not have much effect on the growth of production and total income.
Demand inflation can occur in the economy for two main reasons:
If we see an increase in production costs or an increase in the price of factors of production in the economy, then this issue can be a factor in causing inflation. Various reasons, including rising commodity prices and rising labor prices due to the rise of trade unions, have been attributed to cost inflation. In principle, these factors, which are due to the growth of prices of production inputs, increase rates in the market of factors of production, and the cost pressure is imposed on enterprises and factors of production.
When one sector of the economy faces an increase in the general level of prices, it may put inflationary pressure on other sectors of society. In economics, due to a principle called price stickiness, when the price of one sector rises, this price increase automatically penetrates other sectors and creates a price stickiness.
Sometimes in some developing countries, if a country’s economy is heavily dependent on other countries for imports, the probability of import inflation is higher. The administrative structure and economy of the country, lack of recognition of the potentials of the industry and production sector, government monopoly, and some cultural issues can be the causes of inflation.
Inflation is constantly changing due to the instability and uniformity of the economy, as this feature helps the male government to use the monetary policy and manipulate inflation by interest rates to cast doubt on the economy. It is divided into three categories:
The relationship between inflation and unemployment is completely inverted, or in other words, the two are moving in opposite directions. In economics, the Phillips curve is used to show this relationship. Arthur W. Phillips, who studied economics and statistics in 1958, discovered that the curve between inflation and Phillips’ unemployment had been discovered. This means that governments and economists can manipulate inflation by using interest rates and other factors to change inflation and manage the country in economic crises. In principle, lower inflation in the economy is possible only at the expense of higher unemployment or lower unemployment at the expense of higher inflation.
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