What are the Causes and policies used to counteract inflation

Inflation is a sustained affix in the general impairment take aim over time deep down an economy. It is regarded as an economical problem as it leads to a fall in the shelter of money or real purchasing power. Inflation is caused by prerequisite and supply pressures, nonably adopt inflation, cost inflation, import inflation and inflationary expectations. Coupled with the many negative cause that Inflation burdens on the Australian economy, the government sets about apply a variety of macroeconomic and microeconomic policies to control the level of inflation within the economy. Through the continual conduct of dissimilar policies by the Government and RBA, underlying inflation had been kept at about 2.5% in 2002, within the target range of 2-3% afterward being between 6-10% in the 1980s.

One cause of inflation within the economy is Demand inflation or otherwise know as Demand pull inflation. This is where aggregate demand exceeds heap up supply, causing inflation to occur as supply is not being able to meet the demand within the economy. The main(prenominal) causes of demand pull inflation is excessive growth in any of the major components of AD (AD= C+I+G+X-M). Increased demand leading to inflation may start been caused by increases in consumption expenditure ©, because of ? confidence, ? wages, tax cuts or falls in interest rates.



Increases in investment expense may have been caused by tax cuts or change magnitude depreciation allowances as outlined in the 2006 budget, which increases investment and causes demand pull inflation to occur. Government expenditure may increase due to a rise in Government revenue because of tax revenue, allowing the government to pursue an expansionary policy within the Australian economy. Increases in export income (X-M), may have been caused by higher(prenominal) investment and consumption within the domestic, causing excessive demand to occur and inflation to arise.

Demand pull...

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