Understanding Inflation

Understanding Inflation. Inflation can be defined as the tendency of rising prices of goods and services generally held constant due to unequal flow of goods and the flow of money.

From this we can see the condition of a country that is experiencing inflation, namely:

1. Prices of goods in general will rise continuously
2. the money supply exceeds demand
3. value for money has decreased

The emergence of inflation can be seen from:

1. Based on the severity of inflation
- Inflation mild, below 10% a year
- Inflation is, between 10% - 30% a year
- Severe inflation, 30% - 100% a year
- Hyperinflation over 100% a year

2. Based on the incidence of inflation
- Inflation that comes from the domestic (domestic inflation), inflation was caused by state budget deficit and the resulting failure of the market price of basic needs to be expensive.
- Inflation comes from abroad (imported inflation), occurs because the increase in prices of goods in other countries, the production cost of foreign goods is high, the increase rate of imports of goods

3. Based on the causes of the emergence of inflation, can be classified:
a. Pull demand (demand pull inflation)
This inflation occurs because the aggregate demand will continue to various items
increases, for example:
- Increase in government spending financed by printing new money
- Increase in private investment spending because of the ease of bank credit

Description:
P = Price equilibirium (price before the increase)
S = Supply (supply) which is assumed to be fixed
D = Demand (demand) before experiencing a change
D '= Demand (demand) after experiencing a change, increased due to increased purchasing power
P '= Price (price) after an increase due to shifting demand (D) of
D to D '

b. Pressure cost (cost push inflation)
This inflation caused by rising production costs, usually beginning with:
- Increase in production costs, such as wage increases, rising prices of capital
- Reduction in the number of bidding
- Rising prices coupled with decreasing number of production
P = Price Equilibrium (initial price)
D = Demand (demand) is assumed to be fixed
S = Supply (supply)
S '= Supply (quote after decreases)
P '= Price (price) after an increase due to reduced supply from S to S'
Q = quality of goods

c. Inflation mixture, due to a combination of elements and pull inflation cost-push inflation.
d. Imported inflation, due to the influence of foreign inflation and the existence of trade between countries.
For example: a country experiencing inflation, then the production of these countries
required by other countries and imported, the price of these goods increased.

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