Cost Push Inflation

Cost Push Inflation

Cost-push inflation, also called "supply shock inflation," is caused by a drop in aggregate supply (potential output). This may be due to natural disasters, or increased prices of inputs. For example, a sudden decrease in the supply of oil, leading to increased oil prices, can cause cost-push inflation. Producers for whom oil is a part of their costs could then pass this on to consumers in the form of increased prices. 1973 Oil crisis is a typical example of cost push inflation where the OPEC countries controlled the oil outflow from their reserves(oil embargo) there by pushing the oil prices of the European countries which in turn had led to inflation.

Hyperinflation

Hyperinflation

Hyperinflation is inflation that is very high or "out of control". While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases rapidly as the functional or internal currency, as opposed to a foreign currency, loses its real value very quickly, normally at an accelerating rate. Typical example is Zimbabwe which devalues its currency consistently i.e printing more and more money there by pushing its economy in a hyperinflation state where Zimbabwe dollars are no longer preferred by the sellers who prefer south African rand or American dollar.

Trade Deficit

Trade Deficit

An economic measure of a negative balance of trade in which a country's imports exceeds its exports. A trade deficit represents an outflow of domestic currency to foreign markets. Economic theory dictates that a trade deficit is not necessarily a bad situation because it often corrects itself over time. However, a deficit has been reported and growing in the United States for the past few decades, which has some economists worried. This means that large amounts of the U.S. dollar are being held by foreign nations, which may decide to sell at any time. A large increase in dollar sales can drive the value of the currency down, making it more costly to purchase imports.

Hard Currency

Hard Currency

A currency in which investors have confidence, such as that of an economically and politically stable country. Hard currencies serve as means of payment settlements because they do not suffer from sharp exchange rate fluctuations. Large, international transactions are often settled in one hard currency or other. The market to buy and sell hard currencies is especially liquid, even by the standards of foreign exchange trading. The price of a hard currency often remains stable in the short-term. Examples of hard currencies include the U.S. dollar, the British pound, the euro, and the Japanese yen.

Currency Basket

Currency Basket

A selected group of currencies in which the weighted average is used as a measure of the value or the amount of an obligation. A currency basket functions as a benchmark for regional currency movements - its composition and weighting depends on its purpose.