INFLATION - Inflation is one of the most frequently used terms in

economic discussions, yet the concept is variously misconstrued. There CAUSE OF INFLATION
are various schools of thought on inflation, but there is a consensus
among economists that inflation is a continuous rise in the prices. Simply DEMAND-PULL INFLATION is caused by an increase in the conditions
put, inflation depicts an economic situation where there is a general rise of demand. These could either be an increase in the ability to buy goods or
in the prices of goods and services, continuously. It could be defined as ‘a an increase in the willingness to do so.
continuing rise in prices as measured by an index such as the consumer
price index (CPI) or by the implicit price deflator for Gross National
COST-PUSH INFLATION arises from anything that causes the conditions
Product (GNP)’. Inflation is frequently described as a state where “too
of supply to decrease. Some of these factors include a rise in the cost of
much money is chasing too few goods”. When there is inflation, the
production, an increase in government taxation and a decrease in quantity of
currency loses purchasing power.  
goods produced.
METHODS TO CONTROL
TYPES OF INFLATION
MONETARY POLICY – Higher interest rates reduce demand in the
1. CREEPING INFLATION: This occurs when the rise in price is very economy, leading to lower economic growth and lower inflation. 
slow. A sustained annual rise in prices of less than 3 per cent per
annum falls under this category.  Such an increase in prices is CONTROL OF MONEY SUPPLY – Monetarists argue there is a close link
regarded safe and essential for economic growth.   between the money supply and inflation, therefore controlling money
supply can control inflation. 
2. WALKING INFLATION: Walking inflation occurs when prices rise
moderately, and annual inflation rate is a single digit. This occurs SUPPLY-SIDE POLICIES – policies to increase the competitiveness
when the rate of rise in prices is in the intermediate range of 3 to less and efficiency of the economy, putting downward pressure on long-
than 10 per cent. Inflation of this rate is a warning signal for the term costs. 
government to control it before it turns into running inflation. 
FISCAL POLICY – a higher rate of income tax could reduce
3. RUNNING INFLATION: When prices rise rapidly at the rate of 10 spending, demand, and inflationary pressures. 
to 20 per cent per annum, it is called running inflation. This type of
inflation has tremendous adverse effects on the poor and middle WAGE CONTROLS – trying to control wages could, in theory, help to
class.  Its control requires strong monetary and fiscal measures.   reduce inflationary pressures. However, apart from the 1970s, it has been
4. HYPERINFLATION: Hyperinflation occurs when prices rise very rarely used.
fast at double- or triple-digit rates. This could get to a situation where
the inflation rate can no longer be measurable and absolutely
uncontrollable. Prices could rise many times every day. Such a
situation brings a total collapse of the monetary system because of
the continuous fall in the purchasing power of money.  

TAXATION - is the means by which a government or the taxing authority
imposes or levies a tax on its citizens and business entities. From income
tax to goods and services tax, taxation applies to all levels.
TAX - money that people have to pay to the government.
FISCAL POLICY - it is the use of government revenue collection (taxes)
and expenditure to influence a country's economy.
Principles of Taxation
1. ABILITY TO PAY- maintains that taxes should be levied according to a
taxpayer's ability to pay. The idea is that people, businesses, and
corporations with higher incomes can and should pay more in taxes. Those
people with higher income pay more taxes than those with lower income
regardless of government service they use
2. BENEFIT PRINCIPLE - the idea that there should be some equivalence
between what the individual pays and the benefits he subsequently receives
from governmental activities. Those who use a particular government
services support will pay higher tax and those who do not use services do
not pay tax for it.
▪ COMMUNITY TAX/ CEDULA - is a form of identification issued by the
cities and municipalities to all individuals that have reached the age of 18
years old.
▪ DOCUMENTARY TAX – tax on documents, instruments, loan
agreements and papers evidencing the acceptance, assignment, sale, or
transfer of an obligation.
2. INDIRECT TAX - tax levied on goods and services. It is one that can be
passed on-or shifted-to another person or group by the person or business
that owes it.
Examples:
▪ SALES TAX - a consumption tax imposed by the government on the sale
of goods and services.
▪ VAT (VALUE ADDED TAX) - a consumption tax, each meaning that it
is paid by the end customer rather than the business selling the goods or
services.
▪ ENTERTAINMENT TAX - is levied on every financial transaction that is
related to entertainment and is reserved primarily for the state governments.

TYPES OF TAX ▪ EXCISE TAX - taxes are taxes required on specific goods or services like
fuel, tobacco, and alcohol. ·
1. DIRECT TAX - is one that the taxpayer pays directly to the government.
These taxes cannot be shifted to any other person or group. ▪ CUSTOM DUTY/ TARIFF - tax levied on an imported goods.

Examples:
▪ CORPORATE TAX - a tax on the profits of a corporation.
▪ INCOME TAX - tax is defined as money the government takes out of
your earnings in order to pay for government operations and programs.
▪ WEALTH TAX - A wealth tax is a tax on an entity's holdings of assets.
This includes the total value of personal assets, including cash, bank
deposits etc.
▪ PROPERTY TAX - tax is the annual amount paid by a landowner to the
local government. The property includes all tangible real estate property.