100%(5)5 out of 5 people found this document helpful
This preview shows page 1 - 3 out of 6 pages.
Inflation and Government Economic PoliciesWhat is inflation? Inflation is an increase in prices for goods and servicesWhat are the causes of inflation? Inflation has a variety of possible causes, but they are betweenthe Keynesian theory and monetary theory, ranging between demand-pull, cost-push, built-ininflation, and the quantity model. Demand-pull, inflation is caused by total demand being morethan supply. Cost-push, inflation is caused when manufacturers and businesses raise prices due toshortages in order to balance increases in production costs. With built-in inflation, inflationhappens due to prior increases in prices caused by demand-push or cost-pull. And with quantity,inflation is caused by having too much money in the economyIs inflation desirable and what can be done to control inflation in a market economy? When theeconomy shows stability and has low inflation. Inflation turn out to be desirable when low whichis perfect for productive planning and investment. Since the year 2000, the Consumer PriceIndex has increased. What is the Consumer Price Index (CPI)? Consumer Price Index (CPI) is an index thattracks changes in prices for basic goods and services What have been the causes of these changes? There are several factors that cause a change inCPI, such as the buying habits and trends of the consumer and population shifts.
What is the Producer Price Index (PPI)? This is a system that measures the average changeover time in the selling prices received by domestic producers for their output. The pricesincluded in the PPI are from the first commercial deal for many products and some services.