Question

Inflation in Transition: What have been the major causes of inflation in post-socialist economies, and what instruments have been used to fight it?

Answer 1

Many countries transited from socialism to capitalism and it brought about many issues. Inflation was most plaguing ones. following were reasons for rise in inflation rate in post socialist economies:

• Decontrolled production system led to the drifting away of resources to less necessitated uses. It pushed up prices of essentials goods and services.
• Central bank of country increased money supply that resulted into the rise in aggregate demand.
• Opening of market rendered these countries uncompetitive.

Following actions were taken to provide solutions:

• Money supply was rationalised and central bank focussed upon the objective of stability.
• Government intervened in economic system by making provisions of essential goods and services.