Saturday, January 12, 2019

Define Inflation And Explain How To Use Demand Pull And Cost Push Inflation To Analyze Reasons For Inflation In Sri Lanka?



Inflation Is Perhaps Second Most Serious Macroeconomic Problem In The World Today.Second Only To Hunger And Poverty In The Developing Countries.The Problem Of Inflation Is An Old As Market System.It Has Received A More Attention Since 1970 Century.

Early Definition Of Inflation:
1.Inflation Is A Situation Of Two Mach Money Chasing Too Few Goods.-Coulborn
2.Inflation Is Too Much Currency Relation To Physical Volume Of Business.-Kemmerer

These Definition Tell The Cause Of Inflation But Not What Inflation Is?


Recent Definitions
1.Infaltion Is A Sustained Rise In Prices.-Harry G Johnson
2.Inflation Denotes A Rice In The General Level Of Prices.

Any Rise In The General Price Level Is Not Inflation.Inflation Is The Rate Of Increase In Prices Over A Given Time Period. A Continuous Rise In Price Of A Country Or Common Price Level Is Inflation.


Reasons For Inflation Are,
01.Demand Pull Inflation
02.Cost Push Inflation

01.Demand Pull Inflation

Increasing Amount Of Money Often A Limited Amount Of Goods And Increasing Prices Of Goods And Services Is Demand Pull Inflation.

There  Are Two Approaches Explaining The Demanded Inflation.
1.Keynesian Analysis
2.Arwin Pisher Analysis (Quantity Theory Of Money)

1.Keynesian Analysis
Keynesian Analysis Explain Prices Of Goods And Services Rises Due To The Increase In Demand.There Are Four Factors That Affect Demand Pull Inflation.
1.Increase In Consumer Spending ©
2. Increase In Investment Costs (I)
3. Increase In Government Expenditure (G)
4. Increase In Net Exports (X-M)

2.Arwin Pisher Analysis (Quantity Theory Of Money)
According To Arwin Pisher There Is A Close Relationships Between Money Supply And Price Levels.
Mv=Py

We Can Analyze The Reason For Inflation In Sri Lanka Due To Demand Pull Inflation.
Year
2012
2013
2014
2015
Inflation Rate %
7.6
6.9
4.9
0.9
Consumption
9.3
0.6
4.5
5.3
Investment
10.7
6.4
5.6
5.8
Government Spending
1.8
1.5
9.8
1.3
Exports
2.6
2.8
2.7
3.7
Imports
2.9
3.2
7.2
8.7

Inflation rate of 2013 is less than 2012.reason for that is consumption and investment in 2013 are rapid decline than 2012.so inflation rate of 2013 is reduce 0.7 than 2012.


02.Cost Push Inflation

Cost Push Inflation Explain Prices Of Goods And Services Increase Due To Increase Cost.There Are Some Factors That Affect Cost Push Inflation.
1.Increased Prices For Inputs
2.Decrease Supply Due To Natural Disasters.
3.Taxes On Imported Inputs.

We Can Analyze The Reason For Inflation In Sri Lanka Due To cost push Inflation.

In 2012 the tax of local goods and services are high.so that in that year producer cost is very high. because of that the rate of inflation of that year becomes 7.6%



0 comments:

Post a Comment