The Cause Of Inflation

Present By: Noor Hayati Binti Kardi 061997 Group 15

What is inflation? •define as rise of average prices through economy. In simple terms, it means that money is losing its value. based on studies, there are six economic theories about causes of inflation ,i.e, demand-pull inflation, cost-push inflation, quantity theory of money, philip curve, price expectation, and wage-spiral. But, causes of inflation are easiest to explain by looking at aggregate supply and demand.

If aggregate demand increases to AD1 or aggregate supply decreases to AS2,the price level will increases as well.

Therefore, two major factor that can cause inflation are: d) Increases in demand e) Increases in cost

Increases in demand •known as demand-pull inflation. •level aggregate demand grows faster than aggregate supply. •Too much money chasing too few goods. •we can not manage to produce all goods we need.

As the aggregate demand curve shifts to the right, the price level rises - inflation.

In other hand, increases in aggregate demand also can be because of: b) Consumers are spending more c) Interest rate have fallen d) Taxes have been cut e) Increases power of purchasing f) Firms are investing more in the expectation of future economic growth

Increases in cost •known as cost-push inflation •cost of important goods and services are increases •cost rise too fast, companies will need to put prices up to ,maintain their margin.

The aggregate supply curve shifts left because of the cost increase, therefore pushing prices up.

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there are many theoretical explanations about factors that can led inflation up, especially which is related to increases of demand and cost.

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many tools that they can use to solve inflation:

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Monetary policy (increase or decrease money supply)

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Fiscal policy (change the amount of taxes and governmental spending)

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Various control on prices, tariffs, and monopolies.