Answer to Question #143256 in Macroeconomics for lesego

Question

Distinguish between demand‐pull and cost-push inflation. In your answer, consider the following: Graphical illustration of each cause of inflation (5 x 2=10) Provide any three of your own examples/scenario that might be the cause for each graph you drew above (3 x 2 = 6) Recommend the policy tools to use in order to curb each type of inflation mentioned above (2 x 2 = 4)

Answer 1

One of the causes of inflation is a growing economy. This applies when consumers spend more and they take more debts to service their spending. Secondly, we have asset inflation, which is due to a sudden increase in export forces and undervaluation of the involved currencies. Besides government consumption and more cash in the supply can contribute to inflation.

Regarding the usage of tools that can minimize inflation, monetary policies are set by the government to curb its spending. secondly, we have increased interest rates by the government to curb the people's borrowing potential from financial institutions. Equally, this will reduce the amount of cash in circulation, thus minimizing inflation in the long-run.