Observation

 

 

This question was also popular among the candidates. Candidates were required to define inflation, explain demand-pull inflation, cost-push inflation and explain four causes of cost-push inflation. The performance of candidates in this question was above average as most of them were able to define inflation in (a) but fell short in their answer to the (c) part of the question. Candidates were expected to provide the following answer to score maximum marks in the question.

1. Inflation is a persistent increase in the general price level of goods and services.
2.       (i)         Demand-pull inflation occurs when excessive demand for goods and                            services result in a continuous increase in the prices of goods and services. 

      (ii)        Cost- push inflation occurs when an increase in the cost of factors of                            production results in increase in the prices of goods and services.

(c)        (i)         Increase in the cost of factors of production:  e.g. increase in the cost of     raw materials increases cost of production  which is passed on in form of an increase in commodity prices.
(ii)       Depreciation/devaluation of a country’s currency which may lead to increases in domestic prices of imported inputs. These can cause cost-push inflation.
(iii)       Increase in the cost of borrowing pushes up the general price level.
(iv)       Trade Union activities: Demand for improved wages and salaries and        
working conditions by trade unions increases business costs which push up the general price level.

(v)        Increase in indirect taxes by government is added to production costs and hence increases the general price level.