Economic History
Germany's Hyperinflation-phobia
Economic history: Germany's hyperinflation-phobia | The Economist
What is Inflation or What is the meaning of
Inflation :
In economics inflation means, a rise in general
level of prices of goods and services in a economy over a period of
time. When the general price level rises, each unit of currency
buys fewer goods and services. Thus, inflation results in loss of value
of money. Another popular way of looking at inflation is
"toomuch money chasing too few goods". The last
definition attributes the cause of inflation to monetary growth relative to the
output / availability of goods and services in the economy.
In case the price of say only one commodity rise
sharply but prices of other commodities fall, it will not be termed as
inflation. Similarly, in case due to rumors if the price of a commodity
rise during the day itself, it will not be termed as inflation.
What are different types of inflation :
Broadly speaking inflation is divided into two
categories i.e.
(a) DEMAND - PULL INFLATION: In this type of inflation prices
increase results from 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.
(b) COST - PUSH INFLATION:
This type of inflation occurs when general price levels rise owing to rising
input costs. In general, there are three factors that could contribute to
Cost-Push inflation: rising wages, increases in corporate taxes, and imported
inflation. [imported raw or partly-finished goods may become expensive
due to rise in international costs or as a result of depreciation of
local currency ]
What is Deflation ? :
Deflation
is the opposite of inflation. Deflation refers to situation,
where there is decline in general price levels. Thus, deflation
occurs when the inflation rate falls below 0% (or it is negative inflation
rate). Deflation increases the real value of money and allows one
to buy more goods with the same amount of money over time. Deflation
can occur owing to reduction in the supply of money or credit.
Deflation can also occur due to direct contractions in spending, either
in the form of a reduction in government spending, personal spending or
investment spending. Deflation has often had the side effect of increasing
unemployment in an economy, since the process often leads to a lower level of
demand in the economy.
What is Stagflation :
Stagflation
refers to economic condition where economic growth is very slow or stagnant and
prices are rising. The term stagflation was coined by British politician
Iain Macleod, who used the phrase in his speech to parliament in 1965, when he
said: “We now have the worst of both worlds - not just inflation on the one
side or stagnation on the other. We have a sort of ‘stagflation’
situation.” The side effects of stagflation are increase
in unemployment- accompanied by a rise in prices, or inflation.
Stagflation occurs when the economy isn't growing but prices are going up. At
international level, this happened during mid 1970s, when world oil prices rose
dramatically, fuelling sharp inflation in developed countries.
What is Hyperinflation :
Hyperinflation
is a situation where the price increases are too sharp. Hyperinflation
often occurs when there is a large increase in the money supply, which is
not supported by growth in Gross Domestic Product (GDP). Such a
situation results in an imbalance in the supply and demand for the
money. In this this remains unchecked; it results into sharp
increase in prices and depreciation of the domestic currency.
What is Headline Inflation
Headline
inflation refers to inflation figure which is not adjusted for seasonality or
for the often volatile elements of food & energy prices, which are removed
in the Core CPI (Consumer Price Index). Headline inflation will usually be
quoted on an annualized basis, meaning that a monthly headline figure of 4%
inflation equates to a monthly rate that, if repeated for 12 months, would
create 4% inflation for the year. Comparisons of headline inflation are
typically made on a year-over-year basis. Also known as "top-line
inflation".
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leverage |ˈlev(ə)rij,
ˈlēv(ə)rij|
noun
1 the
exertion of force by means of a lever or an object used in the manner of a
lever: my spade hit something solid
that wouldn't respond to leverage.
• mechanical advantage gained by using leverage: use a metal bar to increase the leverage.
• the power to influence a person or situation to
achieve a particular outcome: the
right wing had lost much of its political leverage in the Assembly.
2 Financethe
ratio of a company's loan capital (debt) to the value of its common stock
(equity).
• the use of credit or borrowed capital to increase
the earning potential of stock.
verb [ with obj. ]
1 (usu. as
adj.leveraged) use borrowed
capital for (an investment), expecting the profits made to be greater than the
interest payable: a leveraged takeover
bid.
2 use (something) to maximum
advantage: the organization needs to
leverage its key resources.
balance sheet |ˈbæləns
ˌʃit|
noun
a statement of the assets, liabilities, and capital of a business or
other organization at a particular point in time, detailing the balance of
income and expenditure over the preceding period.
equity |ˈekwitē|
noun ( pl. equities )
1 the quality of being fair and
impartial: equity of treatment.
• Lawa branch of law that developed alongside
common law in order to remedy some of its defects in fairness and justice,
formerly administered in special courts.
• ( Equity )(in the US, UK, and several
other countries) a trade union to which most professional actors belong.
2 the value of the shares issued by
a company: he owns 62% of the group's equity.
• (equities) stocks and shares that carry no
fixed interest.
3 the value of a mortgaged property
after deduction of charges against it.
ORIGIN Middle English: from Old French equité, from Latin
aequitas, from aequus ‘equal.’
mortgage |ˈmôrgij|
noun
the charging of real (or personal) property by a
debtor to a creditor as security for a debt (esp. one incurred by the purchase
of the property), on the condition that it shall be returned on payment of the
debt within a certain period.
• a deed effecting the conditions of a mortgage.
• a loan obtained through the conveyance of
property as security: I put down a hundred thousand in cash and took out a
mortgage for the rest.
verb [ with obj. ]
convey (a property) to a creditor as security on a
loan: the estate was mortgaged up to the hilt.
• expose to future risk or constraint for the sake
of immediate advantage: some people worry that selling off federal assets
mortgages the country's future.
DERIVATIVES
mortgageableadjective
ORIGIN late Middle English: from Old French, literally ‘dead
pledge,’ from mort (from Latin mortuus ‘dead’)
+ gage ‘pledge.’
