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In: Economics

" inflatin is only caused by greedy businessmen who want to raise the prices to make...

" inflatin is only caused by greedy businessmen who want to raise the prices to make more profits!" do you agree with this statement ? discuss the other factors thst will cause inflation demand pull snd cost push factors

Solutions

Expert Solution

The sustained rise in the general price level is called inflation. it is usually said that businessmen tend to raise the level of price to increase the profits of firms. But it is not fully true, the firm can not determine the price level arbitrarily. The elasticity of demand and supply also play a critical role in the determination of price level.

Demand-pull and cost-push factors actually decide the level of the price level. Increase in the demand and fall in the supply cause the rise in the price level:

Demand-pull:

  • Increase in disposable income.
  • Increase in the money supply.
  • Increase in the transfer payments.

Cost-push inflation:

  • Wage rate rises,
  • Fall in the productivity
  • Higher taxes.

Rahul Sunny answered 2 years ago
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