(a) Highlight the difference between creeping inflation and hyper inflation.
(b) List any four negative effects of inflation.
(c) Outline four ways in which the government of your country can control inflation.
Explanation
(a)A slow but steady rise in the prices of goods and services in general is known as creeping inflation. On the other hand, when the rise in the prices of goods and services in general is persistent and rapid, it is known as hyper-inflation.
(b) Negative effects of inflation:
(i) it discourages savings
(ii) it discourages production and encourages buying and selling
(iii) fixed income earners suffer
(iv) the value of money falls
(v) standard of living falls
(vi) it makes planning difficult e.g. Government proposed expenditure is increased
(vii) it causes balance of payments prob-lems.
(c) Some of the ways in which the government can control inflation are:
(i)government can use contractionary monetary policies to reduce money supply in order to reduce aggregate demand;
(ii) Government can use fiscal policy (tax policy) to reduce household and business incomes in order to reduce aggregate demand.
(iii) Government can reduce its expenditure in order to reduce aggregate demand.
(iv) Government can budget for a surplus and so reduce aggregate demand.
(v) Government can grant subsidies to producers to increase production.
(vi) Government can discourage importation from countries suffer-ing from inflation.
(vii) Government can improve infrastructure to stimulate production.