ESSAY ON "INFLATION: ITS CAUSES AND SOLUTIONS"
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| Navigating the Complex World of Inflation: An Insightful Essay 📈💡 |
Inflation, in simple terms, is the rise in the general level of prices over a period of time. When you notice that the cost of your favorite snacks or that morning coffee is steadily creeping up, you're witnessing inflation in action. But what's behind this sneaky price hike?
The major cause of the increase in the price level is an increase in money supply. It may be due to increase in currency or credit money. An increase in the stock of money induces people to demand more and more of goods and services. According to the Fisher’s Quantity Theory of Money, if there is an increase in the velocity of circulation of money it also leads to inflation. Investments also play an important role in producing inflation. At the moment of investment the economy’s stock of wealth and money expands and it results in inflation. Government of Pakistan has to make a lot of non-productive expenditures like defense etc. Such unproductive expenditures lead to the wastage of economy’s precious resources and also lead to inflation. Corruption and black money leads to increase in aggregate demand, which is also a cause of inflation. These evils increase aggregate demand and import volume. Foreign aids are also a source of mobilization of resources form rich countries to poor countries. Due to demonstration effect people of our country want to copy the styles of people of rich countries. In this way there is an increase in consumption trends that leads to inflation.Population of Pakistan is increasing day by day. Increasing population is demanding more and it creates inflation.
There are three main ways to control inflation. Firstly, Central banks play a vital role in controlling inflation through monetary policy. They can increase interest rates, reduce the money supply, or employ a mix of tools to combat inflation. Secondly, Governments can also step in to control inflation through fiscal policy. By adjusting taxes and government spending, they can either stimulate or slow down economic activity. Thirdly, Increasing the production of goods and services can also combat inflation. Governments can introduce policies that incentivize businesses to produce more efficiently.
Conclusion:
Inflation is everywhere in an economy. Its rate is high in developing countries and is low in poor developed counties. Effective operation of monetary and fiscal policy is essential to control the inflation.
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