Types and Causes of Inflation
INTRODUCTION
Since the inception of civilization, man has been faced with the basic economic problem – scarcity! The natural habitat within which we live has a limited ability to produce and provide for the human race; whose growth is exponential. From this realization, economics was born. To this extent, Lionel Robbins defined economics as ‘‘a science which studies human behavior as a relationship between ends and scarce means which have alternative uses (Becker, 1996)’’, Cameron Rondo further defined economics as ‘‘the social science that analyzes the production, distribution, and consumption of goods and services. (Robin, 1931)’’ It is the production and distribution that is the interest here. Macro economics is the branch or field of economics that deals with aggregate economics; it analyses the economy as a whole, in terms of the national production and consumption. Thus macro economics looks at factors of production and consumption, using the scarce resources – at a national macro level. Macro Economic policy looks at four primary variables, in the study of the economy as a whole, these being unemployment rate, balance of payments, the national interest rate and inflation. This four variables are the major and primary interest of every government, because they are all related to economic growth, which is an indication of the wellbeing of people in an economy – a conceivably obvious interest too, as this determines whether or not they get re – elected! This essay will discuss the fourth variable; inflation. The Essay will look at the general concept and phenomenon of inflation, the causes of the same and the incidence of inflation in Malawi in particular.
INFLATION
Historically the term inflation ‘‘referred to the increase of money supply in the economy, and some economist will still refer to it in this way. (Jevons, 2004)’’ In the modern sense, inflation is generally referred to as the general and sustained increase in the price level. An increase in the
Since the inception of civilization, man has been faced with the basic economic problem – scarcity! The natural habitat within which we live has a limited ability to produce and provide for the human race; whose growth is exponential. From this realization, economics was born. To this extent, Lionel Robbins defined economics as ‘‘a science which studies human behavior as a relationship between ends and scarce means which have alternative uses (Becker, 1996)’’, Cameron Rondo further defined economics as ‘‘the social science that analyzes the production, distribution, and consumption of goods and services. (Robin, 1931)’’ It is the production and distribution that is the interest here. Macro economics is the branch or field of economics that deals with aggregate economics; it analyses the economy as a whole, in terms of the national production and consumption. Thus macro economics looks at factors of production and consumption, using the scarce resources – at a national macro level. Macro Economic policy looks at four primary variables, in the study of the economy as a whole, these being unemployment rate, balance of payments, the national interest rate and inflation. This four variables are the major and primary interest of every government, because they are all related to economic growth, which is an indication of the wellbeing of people in an economy – a conceivably obvious interest too, as this determines whether or not they get re – elected! This essay will discuss the fourth variable; inflation. The Essay will look at the general concept and phenomenon of inflation, the causes of the same and the incidence of inflation in Malawi in particular.
INFLATION
Historically the term inflation ‘‘referred to the increase of money supply in the economy, and some economist will still refer to it in this way. (Jevons, 2004)’’ In the modern sense, inflation is generally referred to as the general and sustained increase in the price level. An increase in the
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