MONEY AND INFLATION — Economics STD 12 Commerce — Question
Gujarat BoardEnglish MediumSTD 12 CommerceEconomicsMONEY AND INFLATION3 Marks
Question
Increase in public expenses causes inflation. Explain.
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Answer
Increase in demand:
If the demand of a product rises, its price rises. Similarly, when the demand increases and the supply is lesser than the demand even then price rises.
In economics if inflation takes place due to increase in demand compared to supply then such inflation is called ‘Demand-pull inflation’. The major reasons for increase in demand are following are discussed below.
Increase in public expenses $($Government expenses$):$
The government of developing countries like India is involved in economic development of the country.
In order to achieve economic development it invests huge money through various projects related to employment, fulfilling basic requirements, raising infrastructure and financial infrastructure. The money put in these projects increases the supply of money in economy.
Owing to these investments people start gaining more income and their purchasing power increases. They then demand more goods and services. This increases the demand of goods and services which leads to inflation.
The inflation rises even faster when the government does huge public expense and supplies more money for economic development as compared to production of goods and services done in the market.
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