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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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Most popular questions from this chapter

Can you date the latest financial crisis in the United States or in Europe? Are there reasons to think that these crises might have been related? Why?

In July 2018 Yi Gang, Governor of the People’s Bank of China, said the fluctuations in the foreign exchange market were mainly due to factors like stronger U.S. dollar and external uncertainties. How can fluctuations in currency exchange rate affect your country’s economy?

The following table lists the foreign exchange rate between U.S. dollars and British pounds (GBP) during April 2017. Which day would have been the best for converting $250 into British pounds? Which day would have been the worst? What would be the difference in pounds?

Why do managers of financial institutions care so much about the activities of the Federal Reserve System?

When interest rates decrease, how might businesses and consumers change their economic behavior?
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