CHANGES IN THE VALUE OF MONEY
Inflation and the causes of inflation
INFLATION
General and persistent rise in prices is known as Inflation
CAUSES OF INFLATION
There are two main types of Causes of Inflation that are Demand Pull and Cost Push.
DEMAND PULL INFLATION
Occurs when aggregate demand exceeds aggregate supply of goods at current prices
Aggregate Demand > Aggregate Supply
Two Reasons:
1. From Demand Side.
2. From Supply Side.
FACTORS OPERATING ON DEMAND SIDE
(1) Increase in money supply.
(2) Increase in government expenditure.
(3) Increase in private expenditure.
(4) Increase in population ? demand for goods & if demand is not met prices? .
(5) Black money.
FACTORS OPERATING ON SUPPLY SIDE
(1) Lacking Industrial and agriculture Production:
An increase in population, employment, urbanization or income exerts pressure on both sectors and if it can not meet the needs it will rise the prices
(2) Inadequate infrastructure facilities:
Shortage or inefficient use of power, transport, and communication facilities, it will have an effect on overall growth.
(3) Long Gestation Period:
Time taken in development of any productive venture like building dame takes many years.
COST PUSH INFLATION
Occurs when there is increase in the cost of production of goods
(1) Increase in money wage rates (manufacturers includes it into the production costs)
(2) Profit push inflation (some manufacturers enjoy monopoly and alter the prices according to there likings).
(3) Material push inflation (if the price of any material increases it will increase the overall price).
(4) Taxis (like sales tax is added to the actual price ...