Final answer:
Inflation is caused by multiple factors including rapid growth of money supply, excess supply, low rates of capacity utilization, and a rise in oil prices.
Step-by-step explanation:
Inflation is caused by multiple factors including rapid growth of money supply, excess supply, low rates of capacity utilization, and a rise in oil prices.
The primary cause of inflation can be attributed to "too many dollars chasing too few goods." This means that when there is an increase in the amount of money circulating in the economy without a corresponding increase in the supply of goods and services, prices tend to rise.
For example, during wars, when government spending is high and production is diverted to the war effort, consumers have little to buy. After the war, when price controls are lifted and pent-up buying power is unleashed, a surge in demand occurs, driving up inflation.