Inflation: General Definition

Inflation: General Definition

  • Submitted By: mjihane
  • Date Submitted: 10/19/2011 2:57 AM
  • Category: Business
  • Words: 1122
  • Page: 5
  • Views: 1

II . Inflation

In this section we shall present an overview of inflation its causes , consequences and enhance the relationship existing between this phenomenon and unemployment. Then, we shall orient our analysis toward the specific case of Morocco.

Inflation: General Definition

Nowadays, inflation is one of the major issues in economics. According to the Dictionary of Business and Management, inflation is defined as “a general increase in prices in an economy and consequent fall in the purchasing value of money” (A Dictionary of Business and Management,2006). In this sense, inflation implies a decrease in the purchasing power of people. On the other hand, the inflation rate which is an annual percentage is essentially based on the evolution of the Consumer Price Index (CPI) which consists of measuring the changes in the price of a basket of goods and services that are representative of the whole economy (Robin Bade and Michael Parkin, 2009, p.142).

Actually, the control of inflation is a fundamental component of the Government’s and Central Bank’s policies. In this context, it is legitimate to ask why is inflation an issue? Why is it a problem? In order to answer this question we need to shed more light on the causes and consequences of this phenomenon.

Inflation: Causes and Consequences

In fact, inflation is a normal trend as long as it is maintained at a low level. Once the inflation rate rise above the acceptable level we talk about “inflation crisis” (Bocco, 2003).

The main causes of Inflation are as follows:

- Monetary inflation: the increase of the supply of money or the “amount of currency in circulation” of money by the government (McMahon, 2008). Actually, an increase in the quantity of money brings an increase in the price level by the same percentage. In this sense, if the supply of money increases more rapidly than the increase of the quantity of goods and service in an economy, then we have...

Similar Essays