What is inflation?, meaning, definition, cause, and effect on economy: In simple terms inflation is, a rise in general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Therefore inflation results in the loss of value of money.
What are different types of inflation? Inflation can be classified in two categories:
Demand Pull Inflation: In this type of inflation, prices increase because of an excess of demand over supply for the economy as a whole. Demand inflation occurs when supply cannot expand any more to meet demand; that is, when critical production factors are being fully utilized, also called Demand inflation.
Cost Push Inflation: This type of inflation occurs when general price levels rise due to rise in input costs. When there is a rise in input costs such as wages, taxes, power etc., the cost of the production also increases which results in rise in the price level.