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Explain the causes of inflation.
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Explain the Causes of Inflation Inflation is defined as a sustained general rise in prices. The opposite of inflation - Deflation - is a term which can have two meanings. Strictly speaking it is defined as a fall in the price level. However it can also be used to describe a slowdown in the rate of growth in the economy. Inflation is measured using either The Retail Price Index (RPI), the Retail Price Index excluding interest payments and indirect taxes (RPIY) or the Retail Price Index excluding mortgages (RPIX). The causes of inflation are down to four main reasons; demand-pull, cost-push, wage-price spirals and money supply inflation. Keynesians have traditionally argued that inflation occurs because of changes in real variables in the economy. One important Keynesian theory is that inflation is caused by excess demand in the economy; known as demand-pull inflation. It occurs when total demand for goods and services exceeds...
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