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Chapter 1: Q.9 (page 66)

What is one of the reasons for inflation in your country? Provide empirical evidence to support your answer.

Short Answer

Expert verified

The excess demand in respond to the supply gives rise to inflation.

Step by step solution

01

Step 1. Introduction

Inflation is the situation of sustained increase in the general price level. It leads to a decline in the value of money holdings.

02

Step.2 Explanation

In case of developing nation like ours, the major reason of inflation is demand pull inflation. Demand-pull inflation occurs when there are insufficient items or services to meet demand, leading prices to rise. demand has positive relationship with inflation, higher the excess demand higher will be the price of the commodity which will accommodate inflation in near future.

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