Causes of Inflation: Increased Purchasing Power of the Public

One of the causes of inflation is the high purchasing power of the public.

What is Purchasing Power?

> Purchasing Power = The ability of people to buy goods & services

If the public has more money, they will spend more.

However, the quantity of goods remains the same.

Because demand increases, prices also rise.

Example:

There are 100 bottles of mineral water

But 200 people want to buy

The seller raises the price because demand is high ➡️ Inflation or increase in the price of goods occurs.

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