ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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An increase in the price of oil
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A depreciation in the exchange rate
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A cut in government spending
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An Increase in taxation
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Detailed explanation-1: -Asset inflation or an increase in foreign exchange reserves-A sudden increase in exports causes the currencies involved to depreciate.
Detailed explanation-2: -Demand-pull inflation can be caused by an expanding economy, increased government spending, or overseas growth.
Detailed explanation-3: -Exchange rate depreciation can drive aggregate demand and create demand-pull inflation by encouraging a high level of exports. Typically when this happens people in a country buy fewer imports while at the same time exports from their country increase.
Detailed explanation-4: -An outward shift in aggregate supply.
Detailed explanation-5: -More jobs and higher wages increase household incomes and lead to a rise in consumer spending, further increasing aggregate demand and the scope for firms to increase the prices of their goods and services. When this happens across a large number of businesses and sectors, this leads to an increase in inflation.