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									Inflation
First, the definition of inflation
Inflation - it is the general price level rising process, that is, a continued depreciation
of the currency paper process. Including the open-type and repressed inflation in;
crawling, moderate style, Pentium-type or hyperinflation; stagflation; expected and
unexpected inflation; demand one way or another and cost push inflation and other
types.
Second, the measurement of inflation
1, Laspeyres index - the name refers to the individual goods based expenditure as a
proportion of weight, to calculate the price index rose situation. Based products
remain the same characteristics of both the Laspeyres index, but also its drawbacks.
When the great change of consumer prices, people would be less demand for the
commodity price increases faster, and more demand is relatively cheap commodity.
Since not be able to base after the emergence of new major consumer goods out into
account, so the actual level of inflation than the Laspeyres index is reflected in the
small. The Laspeyres index exaggerates the overall price level will rise.
2, Perez index - is based on a basket of goods purchased by the end of the reference
point to calculate the price index rose situation. But stressed the final goods price
index, ignoring the base price index of commodities, but also went to the other
extreme, that is, underestimated the rise in the general price level.
3, the Consumer Price Index - is based on representative household consumption
expenditure price index compiled. It is a Laspeyres index. Disadvantages: Choice of
products is narrower in scope, limited to consumer goods.
4, GDP deflator - is calculated at current prices GDP at constant prices of the gross
national product ratio. It is a Pap index. Cons: not in the market transactions of goods
and services will be missed, and it is also difficult to collect information.
Third, the causes of inflation
On the causes of inflation, different theories have different explanations:
1, demand-pull inflation - the theory that inflation is due to the level of aggregate
demand exceeds aggregate supply caused. That is too much money chasing too few
goods results.
2, cost-push inflation - economists profits and wages are included in the cost. Increase
in wages or profits to be transferred to the added price of the product, then changed
from cost-push inflation.
3, hybrid inflation - as when wages are increased, people's needs will
increase, so will start the cost-push inflation demand-pull inflation, real inflation is
difficult to distinguish due to demand pull or cost-push, the economist Paul
Samuelson and Solow on the proposed hybrid inflation, demand and cost factors that
hybrid inflation.
4, structural inflation - even if the total demand and total supply is balanced, because
changes in the structure of economic sectors can lead to price level increases.
Manufacturing sector and service sector productivity of the two departments are
different. High efficiency of the production sector money wage growth, low
productivity service sector growth would be the pressure on wages, but their
productivity is not the same speed. So the service sector to generate a cost-push
inflation. This is the principle of structural inflation.
5, rational expectations of inflation - when the economic factors of full employment,
aggregate supply curve no longer has the flexibility to fully become a vertical line, the
actual output has reached the level of potential output. When aggregate demand
increases, prices will only lead to the same percentage increase, but no effect on real
output. Because the public will be conducted according to the
Government's monetary policy expectations, after repeatedly to understand
the motive of the government monetary policy. So that the government's
expansionary monetary policy ineffective, so the government's
expansionary monetary policy will not only economic but not caused by stagflation.
The theory has three assumptions: (1) The public holds a variety of information is the
economy, they will use all available information to predict the future and the new
information at any time to adjust the economic behavior. (2) the existence of natural
rate of unemployment. (3) monetary neutrality.
6, monetarism, inflation - "Inflation is the increase in money supply
increases faster than the speed of production circumstances, and, per unit volume of
cable with the currency more quickly will increase inflation in the development of the
more fast. "" long-term sustained inflation is a monetary
phenomenon anywhere. "(Friedman words)
Fourth, the impact of inflation
1, the relationship between inflation and economic
The impact of inflation on the economy, there are three different views:
One view: the growth of inflation on the economy play a catalytic role.
Rationale: When the economy is in long-term lack of effective demand,
Shengchanyaosu not been fully effective use of under-employed workers under the
Qing Kuang, real economic growth rate Zeng Changlv below Qianzai the economy,
Zhengfukeyi deficit by increasing domestic demand, Cai Zheng and expand the
money circulation with the expansion of demand for money, so the increase in
economic output. This is the modest role in promoting the economy of inflation.
View 2: return of inflation on the economy and promoting the role.
Rationale: During inflation, continuous depreciation of paper money, the magnitude
of value represented by intangible to continue to lower, so that people can not be
compared to measure the value of goods. Inflation, as price signals direct disturbance,
affecting the smooth progress of social reproduction. This reduces the economic
efficiency of society.
View of three: no effect of inflation on the economy or not sure of.
Reasons: (1) currency neutral on that: when the market is in equilibrium, the currency
will lead to increase in the number with the ratio of the equilibrium price level rise
will not affect the real economy equilibrium. This price change does not affect the
actual output. (2) rational expectations theory holds that only when
people's expectations of inflation rate and the actual inflation rate
differential, the inflation that makes the actual production has fluctuated, but in
anticipation of a deviation, the deviation of people's behavior, so the actual
output The change also can not fathom.
2, the relationship between inflation and unemployment
Economics usually Phillips curve to describe the interaction of inflation and
unemployment, alternative relationship: the unemployment rate is low, the inflation
rate on high; unemployment rate is high, the inflation rate will lower. Some
economists also believe that inflation, people might expect a higher inflation rate,
Phillips curve shifted to the right, which means that the inflation rate under the same
unemployment rate higher. This time is the deterioration of the Phillips curve. When
the failure of the Phillips curve, the curve with the horizontal axis vertical, that is, no
matter to what extent inflation, the unemployment rate must remain.

								
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