TYPES, CAUSES, CONTROL AND CONSUMER PRICE INDEX IN INFLATION
Inflation refers to an economic situation where the demand for goods and services in the economy is continuously increasing without corresponding increase in supply which pushes the general prices up. The opposite of inflation is called deflation.
Inflation is measured by considering the Consumer Price Index (C.P.I) which involves comparison of prices of certain goods and services for two different periods.
In constructing the C.P.I;
Types and causes of inflation
Inflation is classified in relation to its causes.
Demand pull inflation
This is a type of inflation caused by excessive demand for goods and services without a corresponding increase in production resulting into rise in prices.
Causes of demand pull inflation
Cost push inflation
This is a type of inflation caused by increase in cost of factors of production which translates to increased prices of goods and services.
Causes of cost push inflation.
This is a type of inflation which is caused by importation of high priced inputs of production such as; technology/machines, skilled human resources and crude oil.
This in turn increases the prices of locally produced goods which may lead to inflation.
Causes of imported inflation
LEVELS OF INFLATION
Effects of inflation in an economy
Desirable effects of inflation
Control of Inflation
The govt. may adopt the following policies depending on their situation to reduce inflation to manageable levels. They include;
a) Monetary policy
This is a deliberate move by the govt. through the central bank to regulate and control the money supply in the economy which may lead to demand pull inflation. The policies include;
These are the measures taken by the govt. to influence the level of demand in the economy especially through taxation process controlling government expenditure. They include;
These are laws made by the govt. to help in controlling the inflation. They include;
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Business Studies Notes Form 1 - 4
Atika School Team