|
Figure 2. Demand inflation
, where (∆M / M x 100%) is the additional increase in the money supply, usually denoted by m, (∆V / Vx 100%) is the additional increase in the velocity of money, (∆P / Px 100%) - additional increase in the price level, i.e. the inflation rate ∆, (∆Y / Yx 100%) - additional increase in real GDP, denoted by g.
Special measures will be needed to curb demand inflation. In countries with high inflation, there is a situation where the real volume of production decreases and the nominal volume increases at the same time. Growth in income, not provided by production, leads to an excess of money in the hands of the population over the goods and services offered. This reduces the purchasing power of the currency, and for a certain amount of money the population buys less products this year than last year, that is, its real income decreases. For example, if the nominal income of the population increases by 30% this year and the price level increases by 50%, then the real income of the population will decrease by 20%.
This is because the increase in prices was higher than the increase in income (30% - 50% = 20%).
Supply-side inflation is caused by an increase in the price of goods and services as a result of a decrease in the supply of goods and services in the country's economy. In this case, the price of goods will rise, even if there is no oversupply. Even in years of declining employment and declining GDP, commodity prices rise. The main reason for the decline in total supply is the increase in unit costs. At the same time, the cost of production will increase as a result of rising nominal wages, prices for raw materials and fuel.
Supply inflation is also affected by the breakdown of the supply mechanism. The supply mechanism is due to a random increase in the cost of basic factors of production. According to economists, supply-side inflation is self-limiting. The decline in production limits the additional growth of costs, as the rise in unemployment leads to a gradual decline in nominal wages.
The impact of inflation on real income levels also depends on whether it is expected or not. In the context of expected inflation, the income earner takes measures to reduce the impact of inflation on the income he receives, that is, to maintain the level of real income.
The Fisher equation can be used for this:
i = r + , where i is the nominal interest rate; r- real interest rate; -Expected inflation rate.
When the inflation rate exceeds 10%, the Fisher equation takes the following form: i -
r = -----------
Unexpected inflation redistributes income between debtors and creditors in favor of creditors. Unexpected inflation also redistributes income between fixed income earners and unaccounted earners in favor of the latter. It is difficult to strictly control supply and demand inflation. Sometimes these two types of inflation go hand in hand. For example, in the context of demand inflation, hired workers include wage increases in their employment contracts, taking into account the expected level of inflation. This increases the cost of production and leads to supply inflation.
Economic agents, who are watching the decline in supply of goods, are in a hurry to turn money into commodities. This gives rise to demand inflation. Such a sequence can eventually lead to hyperinflation. Hyperinflation is an uncontrollable inflationary process that has a devastating effect on production and employment levels.
Cost inflation leads to stagflation, which is a simultaneous decrease in production and an increase in the price level.
Inflyatsion spiral
Inflation, at an annual rate of a few tens or hundreds of percent, is a sign of a beginning or intensifying crisis in the monetary system. Hyperinflation means its destruction, the paralysis of the whole market mechanism. The official criterion for hyperinflation was introduced by American economist Philip Kegan. F. Kegan suggested that the beginning of hyperinflation should be calculated as the month in which prices first exceeded 50%, and the end as the previous month in which prices rose at a slower pace and then did not exceed it for at least a year. Under hyperinflation, money fails to perform its functions as a measure of value and a medium of exchange. Normal economic relations are disrupted. Funds are not directed to production, but to the accumulation of material wealth.
In countries with high inflation, a situation occurs when the real volume of production decreases and the nominal volume increases at the same time. Growth in income, not provided by production, leads to an excess of money in the hands of the population over the goods and services offered. This reduces the purchasing power of the currency, and for a certain amount of money the population buys less products this year than last year, that is, its real income decreases. The growth rate of inflation can be determined as follows:
Inflation rate =
R – current year's price index;
Anti-inflation policy is a macroeconomic policy aimed at stabilizing the general level of prices and easing inflationary pressures.
Anti-inflationary policies can take the form of active efforts to eliminate the causes of inflation and passive ones aimed at adapting to inflationary conditions.
Anti-inflation policy includes:
-regulation of aggregate demand;
-regulation of aggregate supply.
Keynesian economists are proponents of the first direction, who believe that the level of aggregate supply can be increased through the formation of effective demand at the expense of government orders and cheap credit. These measures by the government will reduce the economic downturn and reduce unemployment.
However, such anti-inflationary policies create a state budget deficit and require the issuance of additional money. Keynes proposed to cover the state budget deficit at the expense of long-term debt received by the state.
Proponents of the monetarist direction of anti-inflationary policy later emerged when Keynesian anti-inflation proposals were not always effective and shortcomings emerged. In particular, public debt has increased in a number of countries. Under such circumstances, monetarists proposed methods of radical asilinflation. They proposed limiting aggregate demand through confiscation-type monetary reforms and reducing the budget deficit by cutting social programs.
Do'stlaringiz bilan baham: | 
