Bottleneck Inflation

Bottleneck Inflation:

This refers to inflation which outcomes from scarcities, imbalances and rising marginal costs as complete employment yield is approached.

Profit – Push Inflation:

Just as trade unions administer to push up salaries, oligopolists and monopolists will elevate prices more than sufficient to cover increase in costs with the goal of making monopoly gains.

Usually during war and in the post- war period, there will be inflation. This is so as during war, the incomes of people raise. However there will be scarcity of goods and there might be rationing, control and things similar to that. Therefore during the post - war years, people who have been enforced to save money will spend. That is, demand for every sort of goods will rise during that period however supply will not increase as rapid as that. This leads to inflation. Inflation takes place during war since the one huge aim at that time is that of winning the war. As modern wars are so costly, the Government has to be based on created money to finance war. This leads to inflation and inflation breeds inflation. This means that inflation leads to the inflation. During a period of inflation, prices will be very high. As prices are high, workers will demand high salaries. High wages outcome in high costs. High costs in turn lead to the high prices. Therefore it forms a horrible circle. “The wages force up prices; prices force up salaries”. This is the inflationary spiral. “Deficit financing” is the other cause of inflation. This exerts specifically to underdeveloped countries with planned economies. Inflationary trends can be also observed during the boom period of a trade cycle.

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