In the long run, inflation is caused by

a. governments that raise taxes so high that it increases the cost of doing business and, hence, raises prices

b. banks that have market power and refuse to lend money

c. governments that print too much money

d. increases in the price of inputs, such as labor and oil

Question

Business

Deven

18 October, 23:04

In the long run, inflation is caused by

a. governments that raise taxes so high that it increases the cost of doing business and, hence, raises prices

b. banks that have market power and refuse to lend money

c. governments that print too much money

d. increases in the price of inputs, such as labor and oil

+3

Answers (1)

Know the Answer?

Dominic Blackburn · Answer 1

c. governments that print too much money

Explanation:

In the long run, increase in money supply causes inflation. Since there are more money circulated in the market than the needs for transaction, inflation (an increase in prices) will be rise inevitably.

The government print too much money when they borrow to much or cannot pay their loans. The government finance its policies by tax and borrowing (issuing the government bonds), when the tax is not enough, the will issue bonds. If the due comes and they do not have enough money, they may force the central bank to print more money to pay their loans or buying their own bonds. This causes the rise of money supply resulting in inflation in the long run. Bolivia is an example of this situation.