Explain The Causes Of Inflation
1. High monetary expansion: The supply of money is expanding quickly every year but the
supply of goods and services is not increasing according to that rates. Due to this, prices are
rising.
2. Increase in wages: The rise in wages, pensions and salaries have increased the purchasing
power of the people. Wages and prices chase each other.
3. Increase in population: The rate of population growth in Pakistan is more than 3%. Due to
this, aggregate demand is increasing day by day.
4. Deficit financing: Means printing of currency notes by the Govern men
t. in order to cover the defect in the budged. It will create inflationary pressure.
5. Hoarding: Businessmen hoard necessities of life for earning profits. So increase in hording,
profiteering, increases the prices of the commodities.
6. Foreign Remittances: The increased remittances by the people working outside the country,
purchasing power of their families are increased day by day. So the demand is increased.
7. Natural Calamities: Due to floods, excessive rains and earthquakes the level of production is
decreased increase in demand and hence, the prices of goods is increase.
8. Consumption habits: The people in Pakistan are extravagant. The people want to achieve
high standard of living. So there is a demonstration effect in Pakistan. As a result, the rise in
prices of goods and services continues.
9. Devaluation: Devaluation brings inflation due to rise are the prices of imports. The people
know that after devaluation prices will rise and they begin to hold stocks. Price level goes up
due to increase in the general demand.
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