Meaning :

Inflation is a general rise in price level of economy as a whole. Demand is greater than supply. Worth of money came down . Purchasing power of money came down.

Aggregate demand = consumption+Investment+Govt. Expenditre.

Thus, Inflation is statistically measured in terms of percentage Increase in the price index, as a rate per cent per unit of time- usually a year or a month.

NATURE:

Inflation is a Pure Monetary Phenomenon :

Monetrists in genral regard inflation as a purely monetary phenomenon. It is held that when money supply exceed the normal absorbing capacity of the economy, it leads to persistently rising prices .

A Keynesian Understanding :

Although inflation by its commonly conceived as a monetary phenomenon , a group of economists, including Pigou and Keynes ,regarded inflation as a phenomenon of full employment .

Incidentally Keynes mentions four related terms while discussing the concept of inflation :

(i)Reflation, (ii) Inflation, (iii)Disinflation, (iv) Deflation.

Demand-pull inflation

According to the Demand Pull theory , prices rise in the response to an excess of aggregate demand over existing supply of goods and services. The demand pull theories point out that inflation might be caused in first place, by an increase in the quantiy of money , when economy is operating at full-employement level. As the quantity of money increases ,the rate of interest fall and consequently ,investment will increase.

Causes of Demand Pull Inflaion:

Increase in public expenditure.

Increase in investment.

Increase in marginal propensity to consume.

Increase in Exports and surplus balance of payments.

Diversification resources.

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Cost-push inflation

Process of inflation is initiated not by an excess of general demand but by an increase in costs, as factors of production try to increase their share of the total product by raising their prices. Thus, it has been viewed that a rise in prices is initiated by growing factor costs. Therefore, such a price rise is termed as “cost-push” inflation as prices are being pushed up by the rising factor costs.