why developing countries have high rates of inflation?

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Expert Solution

Developing countries are growing fast (5% and above GDP growth rate), more of the unemployed people find jobs.

As their income increases, demand in the market also increases, causing AD curve to shift right,

Demand rises → Price rises → Higher Inflation

Also, in developing countries, the people have a very poor or moderate living standards. As their income rises, they would like a higher living standard, for example, now they would like to buy an apartment, a car, TV.

In the developed countries, people already enjoy a high living standard, and most of their basic needs are satisfied. When their income rises, they would like to invest it more as Savings rather than in consumption. Hence, they don’t impact the demand that much.

So, higher GDP growth enhances income, and it also drives demand in the economy, and ultimately resulting in more inflation in developing countries as compared to developed countries.

Rahul Sunny answered 2 weeks ago

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why developing countries have high rates of inflation?

Solutions

Expert Solution

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