Question 1 (25) Many analysts in both developed and developing worlds have heavily criticized the cases of monopolies. Discuss using relevant examples whether it is a good policy for the governments...

Inflation is an oft used variable used to judge policies of a government. It refers to a change in price level, which can be measured by a price index. It can be of many types ranging from hyperinflation to creeping inflation. Ata fundamental level, Keynes was probably the first economist to explain inflation systematically. He attributed inflation to demand factors (that pull up demand, causing demand pull inflation) and supply factors (that reduce supply causing cost push inflation.)
COST PUSH INFLATION.
Any factor that causes AS to shift upwards, with AD constant will cause price level to rise. Note that AS does not shift parallel to itself; only the positive sloping part of AS shifts up. This is because the aggregate supply at full employment level is unchanged. Whenever costs rise SRAS will shift upwards from SRAS1 to SRAS2.
1. Input costs:. Any increase in the prices of raw materials due to internal or external reasons can spike total costs. External reasons include a rise in global commodity prices such as oil, gas copper and primary agricultural products used in production. Internal reasons range from imbalance in domestic demand and supply due to local reasons like a temporary disruption in transportation or a local area flood/ drought.
2. Rising labour costs – Any wage rise can increase costs and shift up the AS curve. Wage rise can be temporary or permanent due to structural and institutional reasons. Salary costs are often co
elated with the economic state -when unemployment is low and the economy is in a boom phase (labour shortages) wages tend to rise
3. Policy measures like higher taxes imposed by the government can cause the final price of a good to increase as producers pass on the tax. Depending on the elasticity of demand and supply, producers pass on the burden of the tax onto consumers.
4. Changes in the exchange rate – This affects prices of exports and imports. A fall in exchange rate leads to an increase in the prices of imports.
.
DEMAND PULL INFLATION: AD is the sum total of consumption, investment, government spending and net exports; any rise in these components will raise AD. This is shown as a shift from AD1 to AD2.
1. A depreciation of the exchange rate causes exports to rise as they become more competitive in world markets.
2. Aggregate demand encouraged by expansionary fiscal policy/ stimulus. A fall in taxes/higher government spending are both components of AD and cause a direct increase in AD.
3. Expansionary monetary policy: A fall in interest rates, a rise in money supply can fuel demand causing AD to rise.
4. Economic growth in other countries – this raises the demand for exports, which increase AD.
5. Improved business confidence encourages firms to invest more and earn better profit margins
Zimbabwe.
In the recent past its inflation reached a whooping 24,000%, that qualifies as experiencing hyper inflation. This was way ahead of inflation rates in other countries-the closest was Burma at 40% rate. The main cause of hyperinflation can be traced to a massive and rapid increase in the money supply (estimated at 17,000%). Such money availability was not supported by the growth of goods and services. Clearly this can be categorised as demand pull inflation.
This imbalance between the supply and demand for the money in the form of lack of goods and services was accompanied by a complete loss of confidence in the money issuing authority. The situation was similar to a bank run, except that there was no central bank/ authority to save the small bank. It is doubtful is the traditional fiscal and monetary measures would be of any help, as there was complete loss of confidence about the economy’s ability to get back on track and the own cu
ency.
The official Zimbabwe dollar was buried in 2009, when all transactions were to be accepted only in US $ terms. Actually 5 cu
encies were granted official status, but US $...