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MONEY AND INFLATION — Economics STD 12 Commerce — Question

Gujarat BoardEnglish MediumSTD 12 CommerceEconomicsMONEY AND INFLATION5 Marks
Question
Explain the other reasons of inflation.
✓

Answer

$1.$ Introduction:
  • Inflation is a one type of process.
  • The major reasons for inflation are $(1)$ Increase in demand $(2)$ Increase in production cost.
  • Many times due to imbalance in demand and supply in economy and many other factors responsible for inflation. Even though it may be minor factor for short term but they may cause a spike in price level.
$2.$ Other reasons of Inflation:
  • They are as under:
$(1)$ Taxation Policy:
  • The taxation policy of the government causes inflation.
  • The higher increases in tax rates by government will increase the production cost of the product which leads to rise in inflation.
$(2)$ Increase in price of Import:
  • The government of the developing country like India is involved in the process of industrialization to make the country a developed country due to this reasons, there is huge demand of petroleum products in the country.
  • In India $70\%$ of petroleum products are supplied via import.
  • If there is an increase in price of crude oil in international market then there will be an increase in rates of petrol and diesel which can also increase the price of other products.
$(3)$ Scarcity:
  • When there is a scarcity in terms of raw material, electricity or any other things for productions then it leads to increase in price level of the goods or services.
  • If scarcity prevail for a longer period of time it causes inflation.
$(4)$ Other:
  • Many countries like India, are associated with general price level, with agriculture produce.
  • During the time of drought or natural calamities the productions of goods are stoped and price does not increase. But cost of living became high, labourers demand for more wages Due to this increase in production cost leads to rise in cost-push inflation.
  • Due to fear of war, government expenditure also increases.
  • By this income of people rises.
  • On the other side manufecturing cost increased so this gives rise to price rise.
  • Many times administrative expense, defense expenses and non-productive expenditure increases.
  • This gives rise to inflation and producers intend to earn more profit gives rise to inflation.
  • By defect of production structure, production does not increase, so price rise takes place.

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