Demand Pull Inflation Too much of money chasing too few goods - - Monetary Economics Other types of inflation (on the basis of inducement) i) Currency inflation: The excess supply of money in circulation causes rise in price level. ii) Credit inflation: When banks are liberal in lending credit, the money supply increases and thereby rising prices. iii) Deficit induced inflation: The deficit budget is generally financed through printing of currency by the Central Bank. As a result, prices rise.
iv) Profit induced inflation: When the firms aim at higher profit, they fix the price with higher margin. So prices go up. v) Scarcity induced inflation: Scarcity of goods occurs either due to fall in production (eg. farm goods) or due to hoarding and black marketing.
This also pushes up the price. (This has happened in Venezula in the year ) vi) Tax induced inflation: Increase in indirect taxes like excise duty, custom duty and sales tax may lead to rise in price (eg. petrol and diesel). This is also called taxflation.
. . Causes of Inflation The main causes of inflation in India are as follows: i) Increase in Money Supply: Inflation is caused by an increase in the supply of money which leads to increase in aggregate demand. The higher the growth rate of the nominal money supply, The higher is the rate of inflation.
ii) Increase in Disposable Income: When the disposable income of the people increases, it raises their demand for goods and services. Disposable income may increase with the rise in national income or reduction in taxes or reduction in the saving of the people. iii) Increase in Public Expenditure: Government activities have been expanding due to developmental and social welfare programmes. This is also a cause for price rise.
iv) Increase in Consumer Spending: The demand for goods and services increases when the people are given credit to buy goods on hire-purchase and installment basis. v) Cheap Money Policy: Cheap money policy or the policy of credit expansion also leads to increase in the money supply which raises the demand for goods