(A) INCREASE IN DEMAND (DEMAND SIDE) :-
1. Increase In money Supply :- An increase in money supply leads
to an increase in money income of the people. The increase in money income
raises the monetary demand for goods and services. This increasing pressure in
demand creates disequilibrium between demand and supply and this results into
high prices.
2. Expansion Of Bank Credit :- Credit has direct relations with
banks because they create credit in the market. If banks provides more
percentage of loan at cheap rate, traders will try to avail this facility in
more percentage. Excessive money increases the purchasing power and thus they
demand commodities.
3. Deficit Financing :- Deficit means public expenditure is
more than public income. To recover this deficit, government resorts to the
policy of deficit financing (government prints currency notes and issues it in
the market) which leads to the increase in the monetary income of the people.
However, production do not increase to that extend. Therefore when the demand
for goods increases it causes the price to rise.
4. Increase In Population :- Many a times, the demand for goods
is higher than the growth rate of output because of the ever increasing
population. This causes price rise.
5. High Indirect Taxes :- Incidence of high commodity
taxation. Prices tends to rise on account of high excise duties imposed by the
Government on the raw materials and essential goods.
6.Black Money :- Unaccounted money is called black
money. This money is developed by avoiding paying taxes. Black money encourages
lavish spending, which causes excess demand and rise in price.
7. Paying Off Debts :- When the government pays off debts
to the public, it results in an increase of purchasing power with the public. This will be used to
buy more goods and service for consumption purposes. Thus increase in the
demand leads to rise in prices.
(B) REDUCTION
IN PRODUCTION (SUPPLY SIDE) :-
1. Lack Of Production :- When the
production falls due to strike, lock outs scarcity of raw material etc,. It
leads to reduction of supply of goods and services even though the demand for
the goods remain constant, thus leading to increase in price level.
2. Natural Calamities And Bad Weather
Conditions :- Bad
weather conditions, through, and failure of agriculture crop have been
responsible for price changes, from time to time in many under developed
countries. Thus natural calamities some times occasionally contribute to the
inflationary boost in a country.
3. Speculation and Hoarding :- Speculation results in artificial
scarcity of goods by hoarding of the same and causing to increase in price
rise.
4. Monopolies :- Monopoly profits and unfair trade
practices by big industrial houses are also responsible for the price rise in
countries like India.
5. Imported Inflation :- Here, scarcity of goods and services are felt when a foreign country purchases goods from its neighbor country during inflation. This, in turn will create scarcity in that country and thus pushing up the prices.
Post by:- Akshay Shivankar
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