(a) Explain any four causes of demand-pull inflation.
(b) Outline any four undesirable effects of inflation.
(a) The four causes of demand-pull inflation are:
Increased consumer spending: When consumers have more money to spend, they purchase more goods and services, which increases demand and drives up prices.
Increased government spending: When the government increases its spending, it injects more money into the economy, which increases demand and drives up prices.
Increased investment: When businesses invest in new projects and expand their operations, they increase demand for goods and services, which drives up prices.
Increased exports: When a country experiences an increase in exports, its demand for goods and services increases, which drives up prices.
(b) The four undesirable effects of inflation are:
Decreased purchasing power: When prices rise, people's money buys less, which decreases their standard of living.
Increased uncertainty: Inflation creates uncertainty, as people don't know what prices will be in the future, making it difficult for them to plan for the future.
Increased cost of borrowing: When inflation is high, interest rates are often increased to combat it, making it more expensive for people and businesses to borrow money.
Reduced savings: When the value of money decreases due to inflation, people's savings also decrease in value, reducing their ability to save for the future.
Increased consumer spending: When consumers have more money to spend, they purchase more goods and services, which increases demand and drives up prices.
Increased government spending: When the government increases its spending, it injects more money into the economy, which increases demand and drives up prices.
Increased investment: When businesses invest in new projects and expand their operations, they increase demand for goods and services, which drives up prices.
Increased exports: When a country experiences an increase in exports, its demand for goods and services increases, which drives up prices.
(b) The four undesirable effects of inflation are:
Decreased purchasing power: When prices rise, people's money buys less, which decreases their standard of living.
Increased uncertainty: Inflation creates uncertainty, as people don't know what prices will be in the future, making it difficult for them to plan for the future.
Increased cost of borrowing: When inflation is high, interest rates are often increased to combat it, making it more expensive for people and businesses to borrow money.
Reduced savings: When the value of money decreases due to inflation, people's savings also decrease in value, reducing their ability to save for the future.