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Inflation

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.

Controlling 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

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