Causes of Inflation, Macroeconomics Video Lecture | Macro Economics - B Com

inflation and it's causes now that we
have understood the term inflation in
much more detail let us take a quick
look at the frontals that cause
inflation the factors that cause
inflation first increase in the demand
for goods and services
second decrease in the supply of goods
and services inflation arises when both
of these factors work together when
demand for goods and services in an
economy exceeds supply of the same
inflation arises let us understand
various factors which cause an increase
in demand for goods and services
increase in public expenditure demand
for goods and services increases when
people have more purchasing power to
their disposal this is achieved when
government increases its public
expenditure thereby increasing the
purchasing power of the households thus
demand for goods and services increase
when the purchasing power is transferred
to households through public works
program increase in private expenditure
if the business conditions are favorable
many private business houses and
entrepreneurs venture in new business
enterprises this investment leads to
rise in the prices of factors of
production like rent wages interest and
commodities like fabrics and food grains
therefore money income of these factors
of production increases
and so does that of expenditure on
consumption of goods this rise gives a
push to demand a supply of goods and
services cannot be raised overnight in
such a case excess demand leads to
inflation increase in consumer spending
the rise in the money income creates the
willingness in the mind of consumers to
spend more easy consumer credit
facilities also help these consumers to
spend more reduction in taxation if
government reduces direct taxes people
need to pay less amount as tax this
offers more disposable income in the
hands of the people
this in turn may be used to buy more
goods and services for private
consumption as well as for capital goods
repayment of past internal debts when
government 3 pays its past
internal debts to the public it
transfers money to the public this
transfer increases the purchasing power
in the hands of the people and demand
for goods and services as well increase
in population it is a fact that more
resources are required to satisfy more
number of people if population will
increase the requirement for goods and
services will also increase increase in
exports exports create shortage for the
goods for home consumption if goods are
exported to foreign countries in spite
of a high domestic demand
thus increase in exports reduces the
stock of goods available for domestic
consumption giving rise to inflationary
pressure deficit financing who deficit
is a condition where you spend more than
your earnings deficit financing means
the financial schemes of governmental
expenditure in which deficit is met by
utilizing cash balances with a reserve
bank or by taking loans from Reserve
Bank this leads to increase in the
supply of money thereby raises the
demand for goods and services from
public let us understand various factors
which cause decrease in the supply of
goods and services Industrial Disputes
Industrial Disputes adversely affect the
production of goods unsatisfied workers
go on a strike if they feel that their
employers do not fulfill their demands
at times employers declare lockout due
to various reasons either of these
conditions who halt the production to a
great extent thereby leading to
reduction in supply and ultimately price
rise shortage of factors of production
there are several factors of production
that contribute in a production process
namely men machine material and money a
shortfall in either of them affects the
production process leading to reduction
in supply of goods and services this
situation arises when economy operates
at full or near full employment level
natural calamities natural calamities
like floods and droughts adversely
affect the supplies of agricultural
products it affects the industrial
production as farmers are unable to
supply the raw materials to the
industries
santé shortage raises the cost of
production hoarding of goods traders
purposely hoard the essential goods with
them and do not sell it in the market to
create a situation of artificial
scarcity also individual consumers may
also hoard essential commodities to
avoid higher prices in future thus
hoarding of goods by sellers and
consumers increases the intensity of
demand for these Goods thus resulting in
inflationary pressure to summarize
factors that cause inflation are
increase in the demand for goods and
services and decrease in the supply of
goods and services the causes for
increase in demand for goods and
services are the causes for decrease in
the supply of goods and services our