Inflation is an increase in the general price level accompanied by a depreciation of the monetary unit. In this case, the essence of inflation is the imbalance that occurs between the aggregate indicators (supply and demand), which develops in all markets simultaneously (in the commodity, money, and resource market). This imbalance can manifest itself in quite different forms.
Instructions
Step 1
In a market economy, that is, in conditions of relative flexibility, as well as the mobility of the price signal, the excess of demand over supply is expressed in an increase in the general price level - this is an open form of inflation. Open inflation is usually measured in terms of the rate of increase per year of the price level and is calculated as a percentage.
Step 2
In order to calculate the inflation rate, it is necessary to divide the difference between the price level of a given year and the price level of the previous year by the price and multiply by 100%.
Step 3
The GDP deflator is used as an indicator of the price level, but the industrial price index and consumer price index can also be used.
Step 4
Inflation can manifest itself to varying degrees. At the same time, the rates are distinguished by moderate (creeping) inflation, galloping and hyperinflation, which in all countries with well-developed market economies are determined according to certain criteria.
Step 5
Moderate (or creeping) inflation is called only that has a rate of up to 10% per year. In this case, it is considered that this is a low rate of inflation, when the depreciation of money is so insignificant that transactions are concluded only in nominal prices.
Step 6
Galloping inflation is limited by the following limits: from 10% to 100% per year. In this situation, money depreciates quite quickly, and either a stable currency is used as a price for transactions, or prices take into account all the expected inflation rates right at the time of payment. Thus, transactions (contracts) begin to be indexed.
Step 7
Hyperinflation in developed countries is determined by a rate that is over 100% per year. In this case, cash depreciation occurs very rapidly, prices can be recalculated daily, and sometimes even several times a day. Hyperinflation destroys the banking system, causes a "flight from money" and paralyzes both production itself and the market mechanism itself. At the same time, the expectation of hyperinflation creates a rather panic mood in business.
