What Influences Inflation

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What Influences Inflation
What Influences Inflation

Video: What Influences Inflation

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Video: What is Inflation? 2023, February
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Inflation is a normal part of any economic system. It either grows or slows down, and this is influenced by many factors. Every state strives to contain inflation, but this is not always easy. Sometimes inflation becomes impossible to control, then there is a risk of an economic crisis.

What influences inflation
What influences inflation

Emission

One of the most significant factors influencing inflation is the emission of funds that have no real basis, that is, they are not backed up by goods or the country's gold reserves. Sometimes this happens if the budget does not receive the required amount of money, but the state needs to spend it, since it is necessary to maintain the functioning of the entire power machine, carry out social programs, and so on.

Reduced production volumes

If the country produces fewer goods than the population needs, but its well-being is growing at the same time, then there is an excess of free funds and a lack of ways to spend them. Then inflation starts to grow at a rapid pace. In such conditions, it becomes increasingly difficult for enterprises producing goods to survive, which further spurs inflation.

Human factor

The human factor is the most difficult moment, which is considered uncontrollable. It may happen that as a result of some processes a rumor spreads among the people, which forces people to urgently spend or invest their savings, to do something else. The economies of many countries are quite fragile, and if all residents begin to simultaneously carry out the same financial transactions, it may not stand it. For example, if the population begins to buy all goods of one type, then this will inevitably lead to an increase in prices for them, and after this, prices for other goods may also rise. Likewise, the exchange rate of foreign currency may rise in relation to the local one.

Antitrust Policy

This factor, unlike the previous ones, reduces inflation. In the event that a certain sector in the economy or the price of a particular group of goods is controlled by one company, it is easy for it to raise the price by regulating demand. But if there are many such companies, they will not act together, so the cost of goods will remain natural, which will not allow inflation to rise too quickly.

Domestic bonds

The state can issue such bonds to reduce the amount of money involved in the circulation. In the future, people who have purchased such bonds can receive interest on them. For this path to work, the population must trust the government and be confident that the funds spent on bonds will be returned. Otherwise, it will be easier for the population to entrust their deposits to banks. The interest on bonds and on bank deposits is usually the same. A decrease in the funds involved in the turnover always leads to a decrease in the rate of inflation.

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