6 Things about Inflammation!!!

By Landon,Sam,Ian

The Six facts

  1. The term “inflation” is from the Latin term inflare, meaning to “blow up or inflate." It was first used in a monetary sense to describe “an increase in the amount of money” in 1838.f Today, economists argue over the definition of inflation but generally agree that it means a continued rise in prices while the value of money declines.

2. The inflation rate is the percentage increase in the price of goods per year. For example, if the inflation rate is 2% Then a $1 candy will cost $1.02 in a year. This can affect the prices over time in the U.S

3. Demand pull inflation-If the economy is at or close to full employment then an increase in AD leads to an increase in the price level. As firms reach full capacity, they respond by putting up prices, leading to inflation. Also, near full employment, workers can get higher wages which increases their spending power.


Venezuela

4. Venezuela has a current inflation rate of 57.30%. The country has been suffering from inflation for many years (see chart below). During the period from 1973 to 2014, it’s been as high as 115.18% and as low as 3.22%. The annual rate has exceeded 100% during two episodes. The first occurred in June 1989 when it hit 103.29%. The second time, inflation remained above 100% for seven months from July 1996 (108.13%) to January 1997 (103.24%). Currently, it’s on the rise again and many economists believe it could breech the century mark once again and hyperinflation will ensue. What’s particularly disturbing for the citizens of Venezuela is that, after the mid 1980s, the annual inflation rate has been above 20% more often than not (see red dotted line in the graph).


5. Rising wages-If trades unions can present a common front then they can bargain for higher wages. Rising wages are a key cause of cost push inflation because wages are the most significant cost for many firms. (higher wages may also contribute to rising demand). This affects the work force with higher wages.


6. Cost Push Inflation-If there is an increase in the costs of firms, then firms will pass this on to consumers. There will be a shift to the left in the AS. If the economy is at or close to full employment then an increase in AD leads to an increase in the price level. As firms reach full capacity, they respond by putting up prices, leading to inflation. Also, near full employment, workers can get higher wages which increases their spending power.

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