Inflation
Presented by Alison Tutors Contact us on +27 68 051 8805
Inflation
In this topic you will learn about:
Inflation
Types and characteristics of inflation
Causes and consequences of inflation
The inflation problem in South Africa
Measures to combat inflation
Unit 1 : Inflation
Inflation is an increase in the general price level of goods and services in an economy over a
period of time. When the general price level rises, each unit of currency buys fewer goods and
services. In 2003 , price of bread was pegged at R3,56 but currently bread on average is
R14,50 .
Unit 2: Types and characteristics of inflation
2.1 Demand-pull inflation
A rise in the price of a product or service that is normally caused by a increase in demand and
a shortage of supply
, Demand-pull inflation has the following characteristics:
a relative increase in total demand
Foreigners contribute to demand-pull inflation because they demand imported goods
and this demand puts greater strain on limited supply thereby increasing prices
if demand of goods rises more rapidly than supply, a shortage will arise and prices will
rise to match inflation
A good example of Demand-pull inflation is aggregate demand rising at 4% but the productive
capacity is at 2.5% , hence firms will see demand outstripping supply . Therefore the respond
by increasing prices
2.2 Cost-push inflation
Cost-push inflation occurs when we experience rising prices due to higher costs of
production and higher costs of raw materials . Cost-push inflation is determined by supply
side factors such as higher wages and oil prices. Cost-push inflation can lead to lower
economic growth and often causes a fall in living standards, though it often proves to be
temporary .
Presented by Alison Tutors Contact us on +27 68 051 8805
Inflation
In this topic you will learn about:
Inflation
Types and characteristics of inflation
Causes and consequences of inflation
The inflation problem in South Africa
Measures to combat inflation
Unit 1 : Inflation
Inflation is an increase in the general price level of goods and services in an economy over a
period of time. When the general price level rises, each unit of currency buys fewer goods and
services. In 2003 , price of bread was pegged at R3,56 but currently bread on average is
R14,50 .
Unit 2: Types and characteristics of inflation
2.1 Demand-pull inflation
A rise in the price of a product or service that is normally caused by a increase in demand and
a shortage of supply
, Demand-pull inflation has the following characteristics:
a relative increase in total demand
Foreigners contribute to demand-pull inflation because they demand imported goods
and this demand puts greater strain on limited supply thereby increasing prices
if demand of goods rises more rapidly than supply, a shortage will arise and prices will
rise to match inflation
A good example of Demand-pull inflation is aggregate demand rising at 4% but the productive
capacity is at 2.5% , hence firms will see demand outstripping supply . Therefore the respond
by increasing prices
2.2 Cost-push inflation
Cost-push inflation occurs when we experience rising prices due to higher costs of
production and higher costs of raw materials . Cost-push inflation is determined by supply
side factors such as higher wages and oil prices. Cost-push inflation can lead to lower
economic growth and often causes a fall in living standards, though it often proves to be
temporary .
