What is inflation What are its causes - Economics - Unit III- Employment Growth Informalisation and Other Issues

Question

What is inflation?What are its causes

Sarabjeet Khanuja · Accepted Answer

Inflation refers to a continuous and persistent rise in the
general price level of goods and services in a country over a
period of time
Causes of inflation are:-
1) Demand pull inflation - If the economy is at or close to full
employment then an increase in AD leads to an increase in the price
level As firms reach full capacity, they respond by putting up
prices leading to inflation
2) Cost push inflation - f there is an increase in the costs of
firms, then firms will pass this on to consumers There will be a
shift to the left in the AS It can be caused by varous factors such
as:-
a) The labour market
b) Import price value kissing sky - Since there is acute
shortage of materials the prices of every commodity continues to
increase and that is complemented by high tarrif and quota rates i
e a sort of double effect is laid on the prices
c) Prices of basic raw materials - This is the major cause of
imflation now a days As, if the cost of raw materials will be high
there would be equivalent rise in the price demand and lastly the
goods would be sold at some more rates in return of good amount of
profits
Thus above all are the major root causes for the back - breaking
prices of inflation