About inflation.

So, what is inflation?
inflation, in simple words sounds like: sustained rising in general price level.

We also have 2 types of inflation:
1) the first one is demand pull inflation: so when ot occurs?
it happens when AD risen so much(shifted to the right) at the time when economy is operating to full capacity, that we have rising in prices, rather than we have economic growth.
Or AD is rising so fast than AS, so in this case we also got inflation. BUT: if economy has a spare capacity, and rising in AD happens, we have NOT inflation, WE HAVE ECONOMIC GROWTH!

2) the second type is cost push inflation: it when AS decreasing(shifting to the left),so we have rising in the price level and also decreasing in real GDP!

How can we do to prevent or decrease inflation?

1) using fiscal policy: the government can put higher taxes or decrease gov.spending. So people will encouraged to save more rather to spend, and if nobody consumes goods and services, so therefore firms and companies have to decrease their prices, in order to make profit.

2) using monetary policy: through this policy the government can rise the interest rates, this also will encourage people to save more, therefore firms have to decrease their prices in order and bla bla bla...

So in general, if we wanna decrease the inflation rate, the government tries to make people to save in different possible ways...

To Chris!

Mr. Chris, I finally moved to another economic group!!!!)))
Yeah!!))