What causes price levels?
Reduction of price levels in the economy can be attributed to different factors. The factors that lead to price levels are to increase interest rate by the central government of the nation, competition between manufacturers, reduction or lack of available cash on the market and improve the efficiency of manufacturers. A common term used to reduce price level is deflation.
When a government or central bank in the country notices an increase in the total price of goods caused by excessive demand, it may try to mitigate the increase in price by increasing interest rates. The Interest Rate Act is more expensive for consumers to borrow money from banks for various purchases. It also makes banks less willing to lend money to consumers on conditions that consumers could be willing to accept. Banks also encourage different customers to save more money by raising interest rates on savings accounts. These actions cause a drop in the level of demand for goods, leading to a reduction in price level.
Competition between different manufacturers and consumables can lead to a reduction in price level. If there are many competition among these manufacturers, one of the tactics to which they resort to the price of goods and services within their marketing strategy to attract customers to attract customers instead of other manufacturers of similar goods. This price reduction is reflected in the reduction of aggregated or general prices of goods in the economy.
Manufacturers can also influence the economy by causing price levels through the development of better techniques for the production and improvement of techniques to minimize waste. Improved efficiency can lead to a reduction in the number of employees and the introduction of other methods of cost savings. Examples include the use of motor -spacked responses and the use of mechanical assembly lines in huge manufacturing plants. Savings are transmitted to different customers through reduced prices and are also translated to o oBecene reduction of price levels.
Sometimes a central bank or government can engage in stuffing excess cash on the market, as well as to reduce money printed in an effort to reduce total price levels. Excess cash in the economy is partly responsible for inflation, because when cash is excess, it will start to lose its value. However, when cash is limited, the value will increase and some cash will go further than when there are too many on the market.