Inflation Notes - . Demand-pull inflation occurs when too...

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Inflation Inflation is a sustained rise in the general level of prices. It does not mean however, that all prices are rising. Oil prices may be increasing, but the price of bangus or tilapia may be falling because of flooding, and tuition fees may be kept at the same level. There is inflation if the price of most goods and services included in an average household’s basket are going up. The inflation rate may be calculated using the given formula: This year’s PI – Last year’s PI Inflation rate = ------------------------------------------------- x 100 Last year’s PI There are two types of inflation: demand-pull inflation and cost-push inflation
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Unformatted text preview: . Demand-pull inflation occurs when too much spending pulls the price level upward. Cost-push inflation may be traced to excessive increases in wages and prices of raw materials which drive up production costs and therefore, the price level upward. The Rule of 70 estimates the number of years it will take for prices to double. It may be computed by dividing the constant number 70 with the annual rate of inflation. A seven percent (7%) annual rate of inflation may mean that in ten years time, prices will double. Inflation may affect the following in different ways: 1. Fixed-Nominal Income Earners 2. Savers 3. Debtors and creditors...
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Inflation Notes - . Demand-pull inflation occurs when too...

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