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Question
Briefly explain three determinants of Cost-push inflation.
Solution
Three Determinants of Cost-push inflation:
- Fluctuations in Output and Supply: The wide fluctuations in the production of foodgrains have been mainly responsible for price rise. There was a remarkable increase in the production Of food grains during the first two plans and the supply of food grains was good. But fluctuation in foodgrain production, the tactics of holding, resulted in an increase in price.
- Public Distribution System: The defective working of the public distribution system results in an uneven supply of various goods, ultimately affecting the prices of essential commodities by way of artificial scarcity.
- Rise in Wages: The rise in the general price level raises the cost of living which in turn, leads to demand for higher wages by workers. When the demand for higher wages is met, it will lead to a further rise in costs or prices.
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