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What are the causes of inflation in an economy?

      

Explain the causes of inflation in an economy.

  

Answers


Maurice
(i) Call for increase in wages and salaries, which will be reflected in the increased prices of commodities.

(ii) Increase in indirect taxes for example VAT, which makes firms to increase their prices.

(iii) Increase in profit margins by management and shareholders leading to an increase in prices.

(iv) Increase in cost of inputs for example raw materials causes the prices of finished goods to be high.

(v) Reduction in subsidies leading to an increase in cost of production which will be reflected in an increase in the price of the commodities.

(vi) Increase in government expenditure making more money available to people which increases aggregate demand leading to an upward pressure on prices.

(vii) Excessive credit creation by commercial banks increases money supply and hence purchasing ability leading to inflation.

(viii) Increase in money income which increases purchasing power causing an upward pressure on prices of goods and services.

(ix) Storage of goods and services leading to excessive demand hence pulling the prices of commodities upwards.
maurice.mutuku answered the question on July 21, 2017 at 05:53


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