Increase in Money Supply: The most important reason of inflation is excessive growth of the money supply. A long sustained period of inflation is caused by money supply growing faster than the rate of economic growth. When there is more money in the system, too much money chases too few goods. That is why the RBI takes tight policy measures to reduce money in the system.
Increased Effective Demand: Another important reason for inflation is increased effective demand for goods and services. When there is an increased demand, the people tend to offer higher price ....
