The prices of commodities are not remain stable its fluctuate time to time, sometimes it goes up with speed and sometimes it come down that the amazing phenomenon. People must be thinking about the reason behind this process, its easy to say that government is doing nothing to lower the prices of commodities but they never think about this fact in the domain of economics.
No need to worry if you don’t have related background of economics, I will make the things easy for you, hope after this tutorials you will explain the entire process and make others understand as well. The rise in prices of product and services is called inflation, when people have more money but the commodities are limited to buy result in increase in prices because supply is limited and demand is more. Inflation is the yardstick to measure the value of money, less money with people more will be the power of money.
Let’s discuss some of the main reasons of inflation or the important factors behind inflation.
- More money allow the people to purchase more result in less supply more demand, the supply demand equilibrium is disturbed. In this case people have money but buying opportunity are less that why prices of the product goes higher.
- Higher the employment higher the inflation.
- More import, less export.
- Country production is not enough to meet the demand of the people.
- Less saving by the people.
- Black money market.
- More percentage of illiterate people in the country.
- More debits.
- Central bank monetary policy allow more money in the market.
- War, terrorism and disaster in the country.
Following points are very important to take into consideration, some measures are required to be take by the government to control inflation such as.
- Higher Taxes on luxury items.
- Tight Monetary policy.
- More spending on education.
- Boost industry to produce new good and services.
- Trade surplus means more export less import.
- Control over back money market.
- Reduce debit by paying liabilities which will reduce interest.
- Balance supply and demand of commodities.
- Investment in profitable ventures.
The inflation for little duration is normal, but if inflation exist for long time period then it a serious problem measures should be taken to normalize the things out.