marks) Question 3: (i.a) Illustrate and explain with diagrams the difference between demand-pull and cost-push inflation; (2.5 marks for the diagram and 2.5 marks for the explanation); (i.b) Provide (describe) two (2) causes of each type of inflation (2.5 marks for 2 demand-pull causes and 2.5 marks for 2 cost-push causes) Cost-push
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Inflation In simple language‚ inflation is the rate at which prices increase annually. Essentially‚ prices go up due to two factors: A: cost-push factor B: demand-pull factor Cost-push factor inflation occurs when there is increase in cost of production of an item‚ which then gets translated into a higher price for that item in the market. Demand-pull factor inflation occurs when there is more money with the consumers compared to the total number of goods available in the market. With too much
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DISTINGUISH BETWEEN COST PUSH & DEMAND PULL INFLATION [10 Marks] Can you remember how much you paid for the same items you buy now‚ two years ago? This increase in the general price level of goods and services in an economy is inflation‚ measured by the Consumer Price Index and the Producer Price Index; Commonly referred to as Inflation. There are however‚ different types of inflation’s‚ each affected by different factors. Aggregate supply is the total volume of goods and services produced by an
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called inflation. Although inflation is part of the normal economic phenomena of any country‚ any increase in inflation above a predetermined level is a cause of concern. High levels of inflation distort economic performance‚ making it mandatory to identify the causing factors. Several internal and external factors‚ such as the printing of more money by the government‚ a rise in production and labor costs‚ high lending levels‚ a drop in the exchange rate‚ increased taxes or wars‚ can cause inflation
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CAUSES OF INFLATION Inflation is caused when the aggregate demand exceeds the aggregate supply of goods and services. We analyze the factors which lead to increase in demand and the shortage of supply. Factors Affecting Demand Both Keynesians and monetarists believe that inflation is caused by increase in the aggregate demand. They point towards the following factors which raise it. 1. Increase in Money Supply. Inflation is caused by an increase in the supply of money which leads to increase
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interest rate and inflation. This four variables are the major and primary interest of every government‚ because they are all related to economic growth‚ which is an indication of the wellbeing of people in an economy – a conceivably obvious interest too‚ as this determines whether or not they get re – elected! This essay will discuss the fourth variable; inflation. The Essay will look at the general concept and phenomenon of inflation‚ the causes of the same and the incidence of inflation in Malawi in
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THE AID OF DIAGRAMS‚ ILLUSTRATE THE CAUSES OF INFLATION AND DEFLATION‚ AND BY COMPARING THEIR ECONOMIC EFFECTS CONSIDER HOW BOTH CAN AFFECT THE CORPORATE SECTOR. The essay will describe causes of inflation and deflation and explain how they can affect the corporate sector. 1. INTRODUCTION DEFINITION OF INFLATION AND DEFLATION Inflation is a process in which the price level is rising and money is losing value. (Parkin‚ Powell‚ Matthews p654) Inflation tends to rise when at the current price
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Inflation is the rise in the general level of prices. This is equivalent to a fall in the value or purchasing power of money. It is the opposite of deflation. Measuring inflation Inflation is measured by observing the changes in prices of goods in the economy using econometric techniques. The rises in prices of the various goods are combined to give a price index that reflects the change in prices of these many goods‚ where the inflation rate is the rate of increase in this index. There is
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INFLATION : A sustained rise in the prices of commodities that leads to a fall in the purchasing power of a nation is called inflation. Although inflation is part of the normal economic phenomena of any country‚ any increase in inflation above a predetermined level is a cause of concern. How is inflation measured Inflation in India is measured through a WPI ( wholesale price index ) . In India‚ the wholesale price index (WPI)‚ rate consisted of three main components - primary articles‚ which
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Causes and Remedies of Inflation in India Inflation by definition involves rise in prices of goods and services. Inflation is usually caused by demand outstripping supply of goods and services. It can also be caused by suppliers/traders of certain goods and services (or speculators in goods) hiking their prices in order to effectively increase their profits/incomes. Such attempts to increase their incomes/profits may also be‚ in many cases‚ through hoarding or speculation
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