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MONEY AND INFLATION — Economics STD 12 Commerce — Question

Gujarat BoardEnglish MediumSTD 12 CommerceEconomicsMONEY AND INFLATION5 Marks
Question
Discuss various factors that look appear but cause inflation.
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Answer

Other reasons:
  • Several other factors can affect the inflation. Some factors may look minor factors and may also affect for a short term but still such factors can shoot the price levels.
  • For example, in case of industries that are dependent on foreign import, increase in import taxes or accidental shortage of some items can also lead to price rise.
Some important minor factors that may cause inflation are discussed below:
$1.$ Taxation policy:
  • The taxation policy of the government causes inflation.
  • High increase in tax rates increases the production cost of the products which leads to rise in inflation.
$2.$ Increase in import price:
  • India imports $70\%$ of its total required petroleum products.
  • When the price of crude oil rises in international market it will lead to rise in price of petrol and diesel. This then increase price of several other products too.
$3.$ Scarcity:
  • Scarcity of raw material, electricity or any resource needed for production leads to increase in price levels of the goods or services.
  • If scarcity prevails for a longer period during production or is extensive in nature it can cause inflation.

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