The causes of inflation in Latvia mainly are:
1. The increase in amount of money (increasing new business man actions, increases the money in Latvian economy)
2. By increasing the amount of money also increases the prices of products
3. Prices depends on supply and demand in world market no only Latvian (In Latvia demand was huge but supply couldn’t handle demand so suppliers had to increase there product prices
4. Some years ago Latvian products were much cheaper the in rest of Europe, so when
5. Creditors are increasing and credits as well Government responses:
‘’ The government anti inflation plan18 has five broad sets of measures. Three measures – budget policy, real estate taxation and measures to dampen the credit boom – are described as providing "for short-term and medium-term policy implementation”. The other measures aimed at the labor market, productivity, energy efficiency and increased competition are "planned to bear fruits in a medium to long term”. Here we concentrate on the first three measures which have the most immediate bearing on the course of inflation in the nearest future. The other measures may have their merits but have only a marginal impact on the likely course of inflation.
It is worth emphasizing that an important aspect of the effectiveness of the measures is that they. Should actually be implemented. For example we see that the measures aimed at the real estate. Market have already been watered down. Moreover there are doubts about the extent to which it is feasible to effectively impose the announced credit measures. Nevertheless, for analytical purposes we assume that the measures will be implemented as stated in the plan. (http://www.bank.lv/eng/main/all/pubrun/workingpap/wp_12007/) Consequences:
1. Unemployment level was up to 20%
2. Factories and manufactures ware bankrupting
3. Latvian government had to borrow money from EU to keep Latvian economy alive
4. A lot of supply but were small demand, so the first inflation went down and the even started deflation which is as bad as hyperinflation
5. Many people lost there jobs, so they couldn’t pay back to creditors and tehet dept. just kept rising
6. Outside investors didn’t want to invest there money in Latvian economy
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