What is inflation?What are its causes
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.