Why are lower income economies more subject to volatile inflation?

Why are lower income economies more subject to volatile inflation?

Expert Solution

THERE ARE MANY REASONS FOR VOLATILE INFLATION IN THE LOWER INCOME ECONOMIES .SOME OF THEM ARE THE FOLLOWING.

1) ALMOST ALL LOW INCOME ECONOMIES ARE RUNNING ON DEFICIT FINANCING.

2)THE CENTRAL BANK HAS LESS CONTROL OVER THE MONEY MARKET.

3)HEAVY DEPENDENCE ON AGRICULTURE AND ALLIED ACTIVITIES FOR LIVELIHOOD .

4)HOARDING AND BLACK MARKETING.

5)LACK OF BUFFER STOCK FACILITIES.

6)HEAVY PETROLIUM IMPORTS.

7)NEGATIVE TRADE BALANCE.

8)HIGH DEPENDENCE ON FOREIGN COUNTRIES.

9)LOW LEVEL OF INDUSTRIALISATION AND INFRASTRUCTURE FACILITIES.

10)RED TAPISM,BUREAUCRACY AND CORRUPTION.

THESE ARE THE COMMON FEATURES IN MOST OF THE LOW INCOME ECONOMIES THAT CATER TO A VOLATILE INFLATION.

Rahul Sunny answered 2 years ago

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