Question

The COVID 19 pandemic and the associated lockdown has led to an increase in aggregate prices of food in Ghana. Using your understanding of (a) the fundamental causes of inflation, (b) the aggregate demand and aggregate supply curve (LR and SR) shifts, provide your sound reasoning for why this aggregate food price increases could have happened in this season.

Answer 1

Fundamental cause of inflation is due to cost push inflation generated by lockdown affected economic activities and demand is lowest and there is job loss due ongoing recession.cost of production is higher in compare to demand in the economy.

Due to cost pull inflation food price are increases as people have less money to spend and food making company or individual have more as compare to their income as demand is low and thus cost of production of food is high.

Aggregate demand shift towards lefts side as demand decrease due to job cut and low income. Aggregate supply curve also shift to left as supply also decline because of a decline in the economy capital stock, labor supply, or productivity, or an increase in the rate of unemployment, as well as supply chain management also affected due to lockdown and social distancing.

Food price increases as cost pull inflation due to corona recession as well import of essential food element also effected due to supply chain disruption cause by corona.