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Inflation - Coggle Diagram
Inflation
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Causes of inflation
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Built-In Inflation
when prices rise, wages rise too in order to maintain living costs
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How to control inflation
Monetary policy
Reduce the money supply within an economy by decreasing bond prices and increasing interest rates. This helps reduce spending because when there is less money to go around: those who have money want to keep it and save it, instead of spending it. It also means there is less available credit, which can reduce spending. Reducing spending is important during inflation because it helps halt economic growth and, in turn, the rate of inflation.
Fiscal policy
Controlling aggregate demand is important if inflation is to be controlled. If the government believes that AD is too high, it may choose to ‘tighten fiscal policy’ by reducing its own spending on public and merit goods or welfare payments. It can choose to raise direct taxes, leading to a reduction in real disposable income. The consequence may be that demand and output are lower which has a negative effect on jobs and real economic growth in the short-term
Direct measure control
increase the production of essential consumer goods like food, clothing, kerosene oil, sugar, vegetable oils, etc.
the government should freeze wages, incomes, profits, dividends, bonus, etc.
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Definition
Inflation is the rate at which the the value of a currency is falling and consequently the general level of prices for goods and services is rising.