Macroeconomic Measurement Versus Macroeconomic Theory
Inflation is the main problem of current era. Inflation is exploiting the whole economy and is incredibly increasing day by day. In this course I have deeply describe the inflation, it's causes and the methods to avoid over growing inflation.
ECS1601 ASSESSMENT 6 SEMESTER 2 2024 (DUE 15 OCT 2024)
ECS1601 ASSIGNMENT 5 DUE 02 JULY 2024
Macroeconomics by Michael Parkin 10th edition
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INFLATION
Inflation is the sustained increase in the general price level of goods and services in an economy over a
period of time, leading to a decrease in the purchasing power of a currency. It essentially means that
your money buys less than it used to, and prices for goods and services rise.
CAUSES OF INFLATION
The causes of inflation can be broadly categorized into two main types:
Demand-Pull Inflation:
Increased consumer spending: When consumers collectively increase their demand for goods and
services, often due to factors like increased income or consumer confidence, it can lead to an excess
demand, causing prices to rise.
Fiscal policy: Government spending and tax policies can impact inflation. Increased government
spending or tax cuts can boost demand and potentially lead to inflation.
Monetary policy: Central banks, through their control of interest rates and money supply, can influence
inflation. Lower interest rates and an expansionary monetary policy can stimulate borrowing and
spending, potentially leading to inflation.
Cost-Push Inflation:
Rising production costs: Factors such as increased wages, higher raw material prices, or energy costs can
lead to higher production expenses for businesses. These increased costs are often passed on to
consumers in the form of higher prices.
Supply disruptions: Events like natural disasters, geopolitical conflicts, or supply chain disruptions can
reduce the availability of goods and services, causing prices to rise due to decreased supply.
Exchange rate fluctuations: If a country’s currency depreciates significantly relative to other
currencies, it can increase the cost of imported goods and services, contributing to inflation.
Conclusion:
It's Important to note that inflation can also be influenced by a combination of these factors, and its
causes can vary from one economic environment to another. Central banks and policymakers often aim
to manage inflation to maintain price stability and support economic growth.
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