The term inflation can be simply defined as the rate at which the price of goods and services tentatively go up. It is a term that all the daily readers of newspaper must be familiar with since any news regarding the fluctuating nature of the financial world is never missed by anyone nowadays. The existence of a strong and secure country depends upon the financial security of that country. Finance is still regarded as one of the key areas where India is striding forward with gradual strength.
Back to our topic, inflation plays a major role in the shape of an economy, which refurbishes the face of the nation. Deflation and inflation are two sides of the same coin and a striving economy always faces these at equal measure. In the case of inflation, it plays a crucial role in influencing the government, which also affects the livelihood, all of the others who constitute the country. There are many detractors who believe that inflation is not good for an economy and many others who favour it too. The general notion behind the inflation is that the upsurge in the numbers will prompt the spur of economic growth regardless to its condition until then.
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The main theory behind the inflation is that it is caused by the demand or supply side or the both. The cost-push inflation is the result of the supply side and the demand-pull inflation a consequence of the demand side. In general terms, demand-pull inflation is when the cumulative demand is higher than the cumulative supply in the economy and the cost-push inflation happens when the cumulative supply is when there is an increase in the price of inputs, which results in the decrease in the supply of outputs. The demand-pull inflation signifies the beginning of price inflation. It shows how the price inflation actually influences the economy. The cost-push inflation is all about understanding why the inflation is difficult to end, once it happened. The main difference between the two types of inflation is that the demand-pull inflation happens due to many monetary factors (increase in money supply) and real factors (fall in tax rates, increase/decrease in exports etc.) and the cost-push inflation occurs due to some of the monopolistic groups in the society. It is mainly caused by some of the factors like the exhaustion of natural resources, monopoly etc. The demand-pull inflation might result in certain factors like a high level of unemployment.
The cost-push inflation might be a temporary situation and usually is a unique problem which does not do any serious harm to the economy. The demand-pull inflation is fashioned by a surfeit in financial growth or an increase in the money supply. Increase amount of money with a little supply in the economy will always result in an increase in the price.
Inflation in an economy could be caused by either of the above-mentioned types. With some careful scrutinizing, experts were able to believe that demand-pull inflation is the most important factor in causing inflation in an economy.