What causes inflation?

Inflation is a constant increase in the prices of goods and services in the country, usually measured in terms of a specific annual percentage. This reduces the purchasing power of currency by reducing the amount of goods or services that a person can receive for the same amount of money. It has many different causes, but in general they are divided into Keynesian and monetaristic theories. The main Keynesian theories, known as the model of the triangle, are demand, costly and built -in inflation and the main monetaristic theory is the model of the amount. There are also many things that can cause a short -term increase in prices, including natural disasters and wars.

In the case of demand, inflation is caused by the fact that aggregated demand is more than available supply. The summary demand consists of consumer expenditures, investments, government expenditures and everything after deducting imports from exports. Factors that usually lead to inflation of demand for a sudden increase in the amount of money in the economy and reducing taxes from goods, which leaves consumers with more one -off income. PRPeople have more money to spend, manufacturers increase the general prices of goods and services.

Another common cause of demand situation is to increase consumer expenditures due to increased optimism caused by the boom in the economy. When people are more secure about their financial future, they tend to spend more and contribute to the increase in prices. Implementation of exchange exchange rates can lead to an increase in the value of imported goods and at the same time cause the export value to be reduced. When this happens, prices on the local market increase when importers and manufacturers carry the costs of local consumers, causing the price of goods.

Cost-Push

Inflation push costs when manufacturers and businesses increase prices due to lack or as a measure to compensate for further increase in production costs. An example of this is rising labor costs. When workers require wage increases, companies usually transmit these nAid for their customers. Increasing taxes imposed on goods can also lead to cost situation as suppliers transfer costs to consumers. This is also often happening when one or several companies have a monopol on the market and decide to increase their prices over the requirements of increasing their profits.

built -in

Built -in inflation takes place due to the previous increase in prices caused by demand or costs. In this type of situation, people expect prices to continue to grow, so they promote higher wages. This increases the cost of manufacturers, which then increase the cost of compensation of the goods, causing the inflation cycle.

quantity

The theory of quantity states that inflation is only due to the fact that it has too much money in the economy. This includes cash and financial tools such as investments and mortgages. It is part of the monetaristic economy in which some inflation can be expected and is considered a normal thing, but any excess must be controlled by handlingu.

short -term causes

Other causes of inflation include wars, natural disasters and a reduction in natural commodities. Wars often lead to this situation because governments must recover the money spent on them and repay the funds borrowed from central banks. Wars also affect the costs of international business and product demand, resulting in price increases. Natural disasters may have a similar effect by disturbing the usual cycle of the production process. This creates a temporary shortcoming when people try to buy limited delivery of goods, causing a sharp increase in prices. Reduction of natural commodities such as helium or oil can act in the same way.

means of checking

Governments of Berour Access to control inflation, depending on what they believe it causes and their attitude to the government's involvement in the economy. In case of a situation with a demand or cost, a government that uses a classic economic approach would do nothing because thisThe degree is based on the idea that the market will naturally work and return to normal without government influence. The government that has captivated the Keynesian approach would be involved in the economy by distinguishing monopolies, regulating commodity prices or controlling wage levels. The Monetaristic Government, or the government that believes in the theory of quantity, would make changes in politics to control the amount of money in the economy.