Tuesday, August 12, 2014

IGCSE economics o level notes,causes of inflation

Causes of Inflation

Demand pull inflation

One of the basis causes of inflation is the rise in the aggregate demand. When demand rises it cannot be met by a corresponding increase in supply, the general price level will increase and inflation will occur.

Cost push inflation

The rise in general price level due to an increase in the cost of production. When any of the factors of production becomes costlier, it results in higher cost of production.  Cost of production may rise due to an increase in the wage rates or expensive raw materials. This reduces the profit margin of the producers. In order to maintain their profit margins, the producers increase the selling price of the commodity which results in cost push inflation.

Monetarist view of inflation

Some economists argue that inflation is caused due to an increase in supply of money in the economy. The idea is that too much money in the economy is chasing too few goods and thus inflation occurs.

Imported Inflation

This is very common for countries which are excessively dependent on imported goods. An increase in the prices of imported goods will lead to a rise in general price level in the economy. In this case the exchange rate plays a vital role. If the currency of a country depreciates it will lead to inflation as imports will become costlier.


1 comment:

  1. TODAY TESTIMONY ON HOW I GOT MY LOAN AMOUNT $800,000.00 DOLLARS FROM A RELIABLE AND TRUSTED LOAN COMPANY LAST WEEK Email for immediate response drbenjaminfinance@gmail.com

    Hello everyone, My name is Mrs. Carolin Glowski, I'm from Europe, am here to testify of how i got my loan from BENJAMIN LOAN FINANCE after i applied Two times from various loan lenders who claimed to be lenders right here this forum, i thought their lending where real and i applied but they never gave me loan until a friend of mine introduce me to {Dr. Benjamin Scarlet Owen} the C.E.O of BENJAMIN LOAN FINANCE who promised to help me with a loan of my desire and he really did as he promised without any form of delay, I never thought there are still reliable loan lenders until i met {Dr. Benjamin Scarlet Owen} who really helped me with my loan and changed my life for the better. I don't know if you are in need of an urgent loan also, So feel free to contact Dr. Benjamin Scarlet Owen on his email address drbenjaminfinance@gmail.com

    ReplyDelete