meaning and causes of inflation

Topics: Inflation, Macroeconomics, Meaning of life Pages: 4 (523 words) Published: November 8, 2013
CHAPTER 2
MEANING AND CAUSES OF INFLATION

Inflation is considered a global phenomenon. It takes place because of rapidly rising prices of goods and services, resulting in the decline of the value of money.
Definitions of Inflation:
According to Prof. Crowther, Inflation is a state in which the value of money is falling and prices are rising. According to Prof. Kemmerer, Inflation means too much currency in comparison to the physical volume of business done. Keynes stated that the rise in the price level after the point of full employment is true Inflation.

Causes of Inflation:
The main cause of inflation is the increase in the demand of goods and services and at the same time decrease in the supply of goods and services.

Factors causing increase in demand for goods and services:
Certain factors like increase in public as well as in private expenditure, increase in consumer spending, reduction in taxation, repayment of old internal debts, growth in population, increase in exports and deficit financing cause increase in demand for goods and services. Factors causing a decrease in supply of goods and services:

Factors like industrial disputes, shortage of factors of production, natural calamities and hoarding of goods cause decrease in supply of goods and services.

QUESTIONS
I.

Fill in the blanks:

1.

Inflation is a _____________ phenomenon.
(local, national, global)

II.

Answer in one or two sentences:

1.

What is the meaning of Inflation in simple terms ?

III.

Answer the following in 5-6 sentences:

1.

Explain any five causes responsible for increase in demand ?

ANSWERS
I

Fill in the blanks:

1.

Inflation is a global phenomenon.
(local, national, global)

II.

Answer in one or two sentences:
1.

What is the meaning of Inflation in simple terms ?

Ans.)
The meaning of Inflation in simple terms is:
In simple terms inflation is related to rapidly rising prices of goods, services, causing...
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