Demand-pull inflation occurs when aggregate demand in an economy is more than aggregate supply. It involves inflation rising as real gross domestic product rises and unemployment falls, as the economy moves along the Phillips curve. This is commonly described as "too much money chasing too few goods". More accurately, it should be described as involving "too much money spent chasing too few goods", since only money that is spent on goods and services can cause inflation. This would not be expected to happen, unless the economy is already at a full employment level. It is the opposite of cost-push inflation.
Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as output/GDP and national income, unemployment, price indices and inflation, consumption, saving, investment, energy, international trade, and international finance.
In economics, stagflation or recession-inflation is a situation in which the inflation rate is high or increasing, the economic growth rate slows, and unemployment remains steadily high. It presents a dilemma for economic policy, since actions intended to lower inflation may exacerbate unemployment.
In economics, inflation is a general increase in the prices of goods and services in an economy. This is usually measured using the consumer price index (CPI). When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money. The opposite of CPI inflation is deflation, a decrease in the general price level of goods and services. The common measure of inflation is the inflation rate, the annualized percentage change in a general price index. As prices faced by households do not all increase at the same rate, the consumer price index (CPI) is often used for this purpose.
In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0%. Inflation reduces the value of currency over time, but deflation increases it. This allows more goods and services to be bought than before with the same amount of currency. Deflation is distinct from disinflation, a slowdown in the inflation rate; i.e., when inflation declines to a lower rate but is still positive.
Purchasing power parity (PPP) is a measure of the price of specific goods in different countries and is used to compare the absolute purchasing power of the countries' currencies. PPP is effectively the ratio of the price of a basket of goods at one location divided by the price of the basket of goods at a different location. The PPP inflation and exchange rate may differ from the market exchange rate because of tariffs, and other transaction costs.
In macroeconomics, money supply refers to the total volume of money held by the public at a particular point in time. There are several ways to define "money", but standard measures usually include currency in circulation and demand deposits. Money supply data is recorded and published, usually by the national statistical agency or the central bank of the country. Empirical money supply measures are usually named M1, M2, M3, etc., according to how wide a definition of money they embrace. The precise definitions vary from country to country, in part depending on national financial institutional traditions.
The Wholesale Price Index (WPI) is the price of a representative basket of wholesale goods. Some countries use WPI changes as a central measure of inflation. But now India has adopted new CPI to measure inflation. However, United States now report a producer price index instead.
Monetary policy is the policy adopted by the monetary authority of a nation to affect monetary and other financial conditions to accomplish broader objectives like high employment and price stability. Further purposes of a monetary policy may be to contribute to economic stability or to maintain predictable exchange rates with other currencies. Today most central banks in developed countries conduct their monetary policy within an inflation targeting framework, whereas the monetary policies of most developing countries' central banks target some kind of a fixed exchange rate system. A third monetary policy strategy, targeting the money supply, was widely followed during the 1980s, but has diminished in popularity since that, though it is still the official strategy in a number of emerging economies.
In economics, nominal value refers to value measured in terms of absolute money amounts, whereas real value is considered and measured against the actual goods or services for which it can be exchanged at a given time. For example, if one is offered a salary of $40,000, in that year, the real and nominal values are both $40,000. The following year, any inflation means that although the nominal value remains $40,000, because prices have risen, the salary will buy fewer goods and services, and thus its real value has decreased in accordance with inflation. On the other hand, an asset that holds its value, such as a diamond, may increase in nominal price from year to year, but its real value, i.e. its value in relation to other goods and services for which it can be exchanged, or its purchasing power, is consistent over time, because inflation has affected both its nominal value and other goods' nominal values. In spite of changes in the price, it can be sold and an equivalent amount of other gemstones such as emeralds can be purchased, because the emeralds' prices will have increased with inflation as well.
The quantity theory of money is a theory from monetary economics which states that the general price level of goods and services is directly proportional to the amount of money in circulation, and that the causality runs from money to prices. This implies that the theory potentially explains inflation. It originated in the 16th century and has been proclaimed the oldest surviving theory in economics.
Incomes policies in economics are economy-wide wage and price controls, most commonly instituted as a response to inflation, and usually seeking to establish wages and prices below free market level.
The Plano Real was a set of measures taken to stabilize the Brazilian economy in 1994, during the presidency of Itamar Franco. Its architects were led by the Minister of Finance and succeeding president Fernando Henrique Cardoso. The Plano Real was based on an analysis of the root causes of hyperinflation in the New Republic of Brazil, that concluded that there was both an issue of fiscal policy and severe, widespread inertial inflation. The Plano Real intended to stabilize the domestic currency in nominal terms after a string of failed plans to control inflation.
Core inflation represents the long run trend in the price level. In measuring long run inflation, transitory price changes should be excluded. One way of accomplishing this is by excluding items frequently subject to volatile prices, like food and energy.
Biflation is a state of the economy, in which the processes of inflation and deflation occur simultaneously in different parts of the economy. The term was first coined in 2003 by F. Osborne Brown, a senior financial analyst at Phoenix Investment Group, and has later been widely used in the media. During the biflation, there is a simultaneous rise in prices (inflation) for commodities bought out of the basic income (earnings), and a parallel fall in prices (deflation) for goods bought mainly on credit. Biflation may be seen in the CPI composition: some CPI components are in the inflationary territory, while others are facing deflationary pressure. As such, biflation reflects the complexity of the modern financial system.
Monetary inflation is a sustained increase in the money supply of a country. Depending on many factors, especially public expectations, the fundamental state and development of the economy, and the transmission mechanism, it is likely to result in price inflation, which is usually just called "inflation", which is a rise in the general level of prices of goods and services.
This page lists details of the consumer price index by country.
In the Philippines, monetary policy is the way the central bank, the Bangko Sentral ng Pilipinas, controls the supply and availability of money, the cost of money, and the rate of interest. With fiscal policy, monetary policy allows the government to influence the economy, control inflation, and stabilize currency.
Galloping inflation is one that develops at a rapid pace, perhaps only for a brief period. Such form of inflation is dangerous for the economy as it mostly affects the middle and low-income classes of population. Importantly, galloping inflation can precipitate an economic depression. Nevertheless, galloping inflation can still be accompanied by real economic growth.
This glossary of economics is a list of definitions of terms and concepts used in economics, its sub-disciplines, and related fields.
