Thursday, July 24, 2014

CAUSES OF INFLATION

10. Explain two possible causes of inflation. [4]
One of the most important causes of inflation is demand pull inflation where prices are pulled up due to increase in aggregate demand of the country. Aggregate demand increase due to increase in consumption, investment, government spending or net export or sometimes combination of all these factors. Inflation can also cause due to increase in the cost of production such as cost of raw materials, labours, oil etc. This increase in cost reduces the supply as a result prices are pulled up.

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