(a) Distinguish between cost-push inflation and demand pull inflation.
(b) Explain any four ways of controlling inflation.
(a)(i) Cost-push inflation; occurs when increases in cost of production are passed on to consumers in form of high prices while Demand — pull inflation occurs when consumers have high purchasing power, aggregate demand increases without corresponding increase in supply.
(b) Inflation can be controlled in the following ways:
(i) It can be controlled by increasing the output to bring down the prices.
(ii) It can be controlled with the use of fiscal measures to reduce the amount of money in circulation e.g. increase in direct taxation.
(iii) The use of contractionary monetary measure, by increasing the bank rate, open market operation, etc. can also control inflation.
(iv) The use of price control by government officials and the application of rationing to maintain the price level is also another inflation control measure.
(v) Another way is by granting subsidy to enterprises and companies producing essential products to reduce cost of production and the products' prices.
(vi) Removing bottlenecks in the distribution system i.e. provision of good roads, storage facilities, etc is another means of controlling it.
(vii) Government should discourage importation from countries already experiencing inflation, as a way of controlling it.
(viii) Use of income policies such as wage freeze, delay in promotions, etc. is a way of controlling inflation.
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