Inflation
Inflation
Inflation is a well known process of the price level increase for various goods and services that leads to a purchasing power decrease. Although, only a price level rise throughout the whole economy can be identified as inflation, due to the fact that prices on particular product go up and down every day. There are several reasons for an inflation to occur, and one of those is called demand-pull inflation. This type of inflation usually occurs when there is an inflationary gap, and when the level of aggregate demand increases at a faster rate than the underlying level of supply, which means that total demand for goods and services is higher than total supply. Such increase in aggregate demand is usually led by four sectors of the macroeconomy:
governments, businesses, households, and foreign buyers. At the time these four sectors simultaneously want to buy more than is actually offered, they start competing for a purchase of limited amounts of goods and services. In such case prices go up again, leading to the growing inflation. Demand-pull inflation is usually of the monetary origin, as the money supply is simply allowed to grow faster than the supply of goods and services in the country.
That is the reason the demand-pull inflation is called "too much money chasing too few goods".
In the situation, when the price level rises along with the rising income of citizens in times of inflation, it is pretty obvious that people will definitely find themselves in worse situation than before, due to the fact that almost all the time prices for goods and services grow at much steeper rates, than peoples’ incomes. People, of course, will not get as much affected, as if their income stayed the same, but still they lose money.
References
Hall, R. E. (1994). Inflation: Causes and Effects. Chicago, IL: University of Chicago Press.
