Posted by David on .
List the various causes of inflation and determine if they are an injection or a leakage.
This is a leakage. If all sectors in the economy try to buy more than the economy can produce, people may start to rely on imports. Therefore, demand-pull is a leakage.
Deficit of the federal government:
This is an injection. If government expands the money supply to keep the interest rates down, the federal deficit will increase but money will be injected into the income.
This is a leakage. If laborers are given higher wages, they will have more money to save and will be taxed higher. Therefore, cost-push theory is a leakage.
This is a leakage. If laborers are paid more, they will be taxed more. Therefore, wage-price spiral is a leakage.
This is leakage. If money is not spent on innovative practices or on investing in research and development, it will likely be saved. Therefore poor management is a leakage.
This is an injection. If the amount of money in the economy increases, it will cause certain groups to have increased buying power. This will cause money to be put into income.
I am not very sure about my answers. Are they correct? Thanks.