Finally, production setbacks may result in decreases in output. Internal — These are factors that are caused by the economic and political situations inside the country.
In brief, an increase in aggregate demand i. Deflation can be defined as the decrease in the price of the goods or services provided. For instance, an increase in income leads to an increase in consumption spending which pulls the price level up.
An increase in the nominal rate of interest D. Seeing inflation, businessmen raise the prices of their products.
There is an increase in demand for products and services and due to this increased demand, prices go up. Again, CPI may be induced by wage-push inflation or profit-push inflation.
The marginal propensity to consume is the: B.
Similarly, beneficiaries from life insurance programmes are also hit badly by inflation since real value of savings deteriorate.
If the annual rate of inflation in an economy is anticipated correctly people will try to protect them against losses resulting from inflation.