In simple terms inflation is the rise in price of commodities and low purchases.Causes and effects
- Inflation is caused when there is too much demand is more for goods or too much money in circulation.
- Inflation affects the entire economy of the nation.
- A drop in exchange rate, increase in tax or wages can lead to inflation.
- An increase in the quantity of money supply can cause inflation.
- Depending on what caused inflation, policies should be implemented. For instance if the cause was excessive demand for commodities, it should be reduced.
- Production costs can be reduced.
- Banks can increase interest rates to avoid circulation of money in excess.
- Trying to maintain a stable and fixed currency rate.
- The supply of gold to the amount sold or output should be stable.
- The percentage of inflation can be measured using the consumer price index. It is a measure for price change based on production of goods.