MONEY INFLATION | Financial Management | Money Minded

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MONEY INFLATION:

Introduction:

                    This post helps you to understand the concept of MONEY INFLATION. This post contains meaning, causes and an example of Money Inflation. So read the passage which will be very useful to you.

What is mean by  "MONEY INFLATION"?

                     * "MONEY INFLATION" means the decrease in value of the money over a period of time. Money Inflation is the reason for the products price increase. 

                     * Due to the increase in product's price, people will find difficult to buy products. So, Money Inflation is the major reason for the decrease in purchasing power.

 

MONEY INFLATION

                     * Purchasing power can be explained detailly by the below tabular column. 

   Product Name (INDIA)     Price in 2000                           Price in 2020

       MILK                                      RS.8                                    RS. 45

       RICE                                       RS.15                                  RS.60

       WHEAT                                  RS.12                                   RS.50

Money Inflation Calculator:

                                      Let we consider you have 10,000 rupess now. If the Inflation rate for one year is 4%. 

               Then the value of 10,000 after Inflation in next year is: 10,000 - 4% (400) = 9,600.

Causes of "Money Inflation" :

                             Money Inflation is caused by Three major reasons. The Three reasons are,

                                             *  COST PUSH INFLATION

                                             *  DEMAND PULL INFLATION 

                                             * GOVERMENT POLICIES

COST PUSH INFLATION:

                               * Cost Push Inflation means the inflation caused due to a low supply for the highly demanded product. Cost pull Inflation is determined by the manufacturers production rate and consumers purchasing rate.

                               * In Cost Push Inflation, the product price increases even if the raw materials of the product increase. This implies that if one product price increases then all the other products price will increase and cause Money Inflation.

                               FOR EXAMPLE: If the company manufactured 1,000 chocolates at the price of 1$ . But, 1500 customer likes to purchase the chocolate means the company will increase the product price to 1.5$ 

COST PUSH INFLATION

DEMAND PULL INFLATION: 

                                  * Money Inflation not only happens when there is a less supply but also when the people become rich. The Money Inflation occurs when every become rich is known as Demand Pull Inflation.

                                  * If everybody's monthly income is changed from 20,000$ to 200,000$ then people would like to purchase everything they see. Then there would become a demand for every products. Then, the cost of living would become high. 

                                  * To reduce the insufficiency companies would increase the product price according to the people's income. This inflation is an example of Demand Pull Inflation.

DEMAND PULL INFLATION

GOVERNMENT POLICIES:

                                     * The main cause for Money Inflation is Government Policies. By announcing many policies, spending for unwanted thing, poor financial knowledge makes the government to print more currencies.

                                      * By printing unlimited currencies, the currency value of the country become low and this can make the country to become financially backward.

                                      * To get financially improved, countries force taxes on people and this may leads to Money Inflation.

CURRENCY CRISIS

Example of Money Inflation:

                                     Let we consider a person GOKULNATH, he owns a chocolate company, 

                                             * The Pricing factors of chocolates in Gokulnath chocolate Company depends on Raw materials, Electricity, Labours, Taxes. If one of these pricing factor increase then the price of the chocolate will automatically increase.

                                             * Gokulnath wants the price to be same. So, Gokulnath used a strategy of reducing the quality and quantity of the chocolate without doing any change in chocolate price. As quantity is reduced, then the purchasing power is automatically reduced. This is an example of "MONEY INFLATION".    

 Conclusion:

                                   * These are the factors involved in Money Inflation. Money Inflation is the reason for high prices.

                                    * I hope this will be useful to you. Follow and Suggest "MONEY MINDED" to all.

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