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Running head: INFLATION AND GOVERNMENT ECONOMIC POLICIESInflation and Government Economic PoliciesInstitution AffiliationDate1INFLATION AND GOVERNMENT ECONOMIC POLICIES2INFLATION AND GOVERNMENT ECONOMIC POLICIES1. Inflation is the increase in prices of commodities and the fall in the purchasing value ofmoney. Demand push inflation occurs when the demand for goods and services increases beyondan economies capacity to produce them. Cost-push inflation is caused by the increase in prices ofproduction inputs such as raw materials and the cost of labor (Gal, 2015). Inflation is desirablewhen it is low but not too low since it may lead to deflation. Inflation can be controlled bymonetary policy by reducing monetary supply in an economy which can be done by decreasingbond prices and interest rates. It can also be controlled by increasing the output of products tomeet the high demand and increasing the availability of credit to the people and reducing the costof credit.2. Consumer price index is the change in prices of basic products and services between 2periods. Since 2000, consumer price index has been increasing due to the increase in prices ofbasic goods and services such as healthcare, and housing.INFLATION AND GOVERNMENT ECONOMIC POLICIES3Source: U.S Bureau of labor statistics3. Producer price index is the weighted index of prices of commodities measure at thewhole price. The producer price index has decreased since 2000 due to the decline i ...


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