Inflation is a fairly common problem in the economies of many world states. This phenomenon is reflected in the production of goods, the policy of the country. But first of all, people suffer from inflation. How do you define inflation?
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Instructions
Step 1
In Latin, inflation (inflatio) means bloating. In the middle of the 19th century, this term in North America began to denote the process of inflating the circulation of paper money, that is, their depreciation. This phenomenon is accompanied by a general rise in the price level and a decrease in trade. For an accurate understanding, it is necessary to consider the factors that determine inflation.
Step 2
Inflation is generated by an imbalance in various economic areas of the market. The production of goods in demand lags behind the population's ability to pay. At the same time, the market is overflowing with unclaimed goods. The depreciation of the monetary unit occurs in relation to gold, commodities, foreign currency.
Step 3
Prices do not necessarily rise evenly. Some remain at the same level and even fall, others quickly rush upward, while others slowly and moderately increase. The different proportions of supply and demand cause such volatile pricing elasticities.
Step 4
To measure the level of this process, it is necessary to determine the inflation index. To do this, select a base period. For example, you can take the price index in 1981-1983, which is approximately equal to 100. In 1987, the price level was approximately equal to 117. Therefore, the price in 1987 is 17% higher than in the period 1981-1983. This means that the consumer basket of goods in the base period cost 100, and in 1987 the same set already costs 117.
Step 5
The expected inflation rate can now be determined. To do this, subtract the price index of last year (1986) from the index of the current year (1987), divide the difference by the index of the past year (1986) and multiply by 100. For example, the consumer price index in 1986 was 114, and in 1987 was equal to 117. So, calculate the inflation rate in 1987 as follows:
Temp inf. = ((117-114) / 117) * 100 = 3% (3)
Step 6
And the “70 rule of magnitude” gives you the ability to calculate the number of years it takes to double the price level. Divide 70 by the average annual inflation rate: Years (double) = 70 / Inf. Rate. (%) For example, an annual inflation rate of 3% implies a doubling in prices in about 23 years.
