Question

“Inflation is a monetary phenomenon.” Explain.

Answer 1

Inflation is a monetary phenomenon because inflation is created by higher demand which is generated into the economy by consumers and it is also reflective of a a supportive monetary policy of the Central Bank.

Inflation is a situation in which the prices of goods and services in the economy are rising substantially and inflation will be reflective of a situation in which the goods and services are demanded excessively by consumers and which is not met by the supplies so it is reflective of a situation in which there is a higher monetary flow in the economy.

it is also done by supportive monetary policy by the central bank because when the central bank will be keeping the interest rates lower, it will mean that there will be a generation of higher demand into the economy and when the interest rates will be going up, it will mean that the inflation is going to calm down,because there would be lack of demand due to higher interest rates in the economy as the goods and services will be demanded in lower quantity and the prices will stabilize so inflation is always a monetary phenomena and it is reflective of a situation in which there will be excessive demand and rising prices and which is also a result of stimulation of the demand into the economy by the central bank so it will be controlled by the central bank through increasing of the interest rates and other monetary tools and hence inflation is a monetary phenomenon.