Explain what you think is happening in the picture below.
What is inflation?
This describes a situation when prices are persistently rising and the value of the currency reduces.
This means that the cost of living has increased and the money earned will purchase less.
Factors which cause inflation
- The factors below are known as ‘cost-push’ factors. These are the factors that cause the cost of goods to rise.
- 1. Paying workers high wages which then increases the cost of production *2. A rise in the cost of imported goods 3. More money has to be paid for imports. (devaluation)
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What do you think are Barbados' biggest imports?
The following are known as “demand-pull” factors. These occur when demand moves faster than supply.
1. Full employment- lots of money in the economy and not enough goods so prices are raised to limit the demand
2. Persuasive advertising- stimulates demand and causes prices to rise
3. Easily available credit- increases demand
Control of Inflation
1. Put price controls on certain goods
2. Encourage the population to buy local goods
Why do you think governments must have price controls?
What are some of these products which should have price controls?
How do you think buying local helps to decrease inflation?
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