Contact Us
Sign In / Sign Up for FREE
Go to advanced search...

Inflation - Research Paper Example

Comments (1) Cite this document
The reason inflation is so influential is because inflation affects the purchasing power of money. For example if a person is able to purchase $1 of goods today and a year later the national inflation rate is 10% that person would only be able to purchase 90% of the goods a year later with a $1. …
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER92.5% of users find it useful
Read Text Preview

Extract of sample "Inflation"

There are different economic variables that affect the lives of people. One of those variables is inflation. Inflation can be defined as a persistent substantial rise in the general levels of prices (Dictionary). The reason inflation is so influential is because inflation affects the purchasing power of money. For example if a person is able to purchase $1 of goods today and a year later the national inflation rate is 10% that person would only be able to purchase 90% of the goods a year later with a $1. The effect of inflation is that it makes your money be worth less. Inflation affects more poor people because this group of individuals has limited resources. Inflation affects the consumer markets as well as the money markets. The money market is where the government sells treasury stocks and bonds and where corporations sell corporate bonds. The interest rate influences the money markets because when interest goes up companies are forced to offer higher bond coupons rates in order to attract investors. The bonds of corporations are rated by agencies such as Moody’s. Take for example a company that sells bonds. The company is offering bonds that pay 8%. The inflation rate of the nation is 5%. The investor gets a net return of 3% after deducting inflation from the coupon rate. Suddenly the interest rate of the nation goes up to 9%. Based on those circumstances the corporation cannot sell bonds at 8% because nobody would buy them since the bonds have a net loss of 1% after inflation is deducted. The inflation rate in a country affects the amount of interest that people earn in their savings and checking accounts. When inflation goes up banks are forced to pay higher interest rates to provide value to their customers. Different age demographics are affected more than others by inflation. The elderly are affected a lot by inflation. The reason that the elderly get hurt more than others is because most pension funds pay fixed payments. If a person gets a $600 for the rest of their lives as time passes that pension become less valuable because inflation is deducing the buying power of the $600. The federal government realizes the impact inflation has on the elderly and in their social security system there is a safeguard protocol that protects the beneficiaries. The payments of social security are adjusted each year to offset the effects of inflation. Another reason the elderly are affected a lot by inflation is because the elderly spend a lot of money on medical expenses. The inflation rate in the medical field is approximately 10%. The inflation varies by goods and industries. When inflation occurs in food prices the lower class is affected the most because poor people have limited income to pay to its food necessities. The amount of inflation in an economy depends on the country. In the United States the inflation rate as of February 2011 was 2.1% (Tradingeconomics). Historically the United States has always had a low inflation rate. There are parts countries in this world that have been completely destabilized by the effects of inflation. A phenomenon in economics known as hyperinflation can destroy an economic system. Hyperinflation can be defined as extreme or excessive inflation. A country that is currently going through a hyperinflation crisis is Zimbabwe. Two other countries that have suffered through hyperinflation in the past are Argentina and Russia. In the past the cost of living was much lower. We have heard stories how our grandparents used to pay a few pennies for a can of coke or a pound of bread. Through the passage of time things have gotten much more expensive. Despite lower wages our ancestors had great wealth because they could buy more goods and services with less money. During those years owning land and homes was more accessible because prices were much lower. When inflation goes up in the United States the Federal Reserve can take measures to control inflation. This is called monetary policies. The current chairman of the FED is Ben Bernanke. Inflation is an economic variable that affects the lives of everyone. When inflation is low people enjoy a better standard of living in the long run because their money is not getting diluted due to inflation. In the United States inflation is currently low at around 2%. When inflation is low it is a good time to borrow money from banking institutions. People should invest money in the equity and money markets in order to offset the effects of inflation. The interest paid by banks are simply too low to offset inflation. Work Cited Page 2011. “Inflation” 14 April 2011. <> 2011. “United States Inflation Rate.” 14 April 2011. Read More
Cite this document
  • APA
  • MLA
(“Inflation Research Paper Example | Topics and Well Written Essays - 750 words - 1”, n.d.)
Retrieved from
(Inflation Research Paper Example | Topics and Well Written Essays - 750 Words - 1)
“Inflation Research Paper Example | Topics and Well Written Essays - 750 Words - 1”, n.d.
  • Cited: 0 times
Comments (1)
Click to create a comment or rate a document
edna60 added comment 2 years ago
Student rated this paper as
I didn’t know how to start my essay. "Inflation" helped me out a lot! Especially the list of resources was valuable.


Inflation Control by Government of UK Economy

... of overall fixed capital formation in the UK is depressed by the very low level of public investment. During the 1970s and much of the 1980s the UK endured persistently high inflation. Despite high levels of unemployment, wage increases in the 1980s exceeded productivity growth, provoking strong upward pressure on prices. The boom of the late 1980s created a new inflationary surge, painfully controlled only by high interest rates and the early 1990s recession. Since then, however, the UK's inflation performance has improved markedly. The government has preferred measure of inflation, the RPIX (which excludes mortgage interest payments), has fluctuated within a narrow range in recent years and even came in below the official central target...
8 Pages (2000 words) Essay

The Methods Open To a Government to Control the Rate of Inflation within an Economy

... impacts on the economy. UK economy, in recent years have consistently shown an increasing trends as the inflation has remained as high as 4.8% in March 2007. (Moneyextra, 2008). This general increase in the price levels within the economy has resulted in the widespread economic measures both by the Bank of England an the UK government including the raising of the interest rates by Bank of England and other measures to curb the inflation in the economy. This essay will look into some of the measures which UK government can take to contain the inflationary pressures on its economy. Firstly, we will be exploring the historical trends in the inflation within the UK and then based on the findings, means and ways will be suggested to control...
6 Pages (1500 words) Essay

Joining the Economic and Monetary Union and Inflation

...the scale of the price adjustment also both up and down was less significant than otherwise. Nevertheless both developed quickly back to the former patterns. On the divergent, this paper would find evidence of a decline in the resolution of the inflation progression in the mid-1990s. This also would be evidenced due to a structural alteration in private inflationary prospect due to policies associated to the groundwork of EMU. Regression Model analysis also been adjusted for Statistical analysis using an OLS- and a 2SLS. Main focus of the paper has addressed the question - How joining the Economic and Monetary Union of the European Union affects Inflation? Introduction: Joining the Economic and...
24 Pages (6000 words) Essay

Central Bank Independence and Inflation Targeting

...individual interested in the world fiscal movements. The main cause for this lay in the fact that the general rise in the variability as well as the general level of inflation, which largely depended on the increase in the oil prices, led to large concerns regarding the efficacy of the Central banks in fulfilling its commitment of controlling such inflationary tendencies (Posen, 1998). There was significant consensus on the opinion that central banks most of the larger economies had faced some incentives which had the capability of inherently leading to an ‘inflationary bias,’ and this bias had resulted in the high inflationary tendencies prevalent during the 1970s (Alesina & Summers, 1993). In essence the changes in the...
40 Pages (10000 words) Essay

Relationship between Money Supply and Inflation in Saudi Arabia

Over the recent past, the effects of money supply, debt and inflation have become contentious issues for debate. Furthermore, frequent cautions concerning the risk of very large budgetary deficits aver that this would send up the upcoming state debt and capital rate as indicated by the rates (interests). As a nation, Saudi Arabia has a bi and enduring budgetary deficit over the past two decades and the government has been forced to go into the market so as to have loan access and to make up for the deficits. Given the impact of this on inflation and other economic variables, it's imperative and of great alarm for strategy architects (strategists) to understand how microeconomics has an effect on money supply, financial plan defici...
10 Pages (2500 words) Speech or Presentation

Inflation Targeting

... is an economic policy in which a central bank estimates and sets public a project inflation rate and then tries to push the actual inflation towards the target by using interest rate changes and other monetary tool. As the interest rate and inflation rate are inversely related the likely moves of the central bank to raise or lower interest rates become more transparent under the policy of inflation targeting. The scenarios are; when inflation rates are above the target, the bank raises interest rates, this usually (but not always) affects over time on cooling the economy and bringing down inflation. And the opposite, when inflation appears below the target, the bank lowers interest rates, this usually (again, not always) affects over time...
8 Pages (2000 words) Coursework

Mortgage Inflation in the United States

... and along with the rise of interest rates mortgage rates also increased. The mortgage rates increased so much that at a point most borrowers were not able to repay their loans and they defaulted. This started the mortgage crisis in United States. The bursting housing bubble then led to the recession of 2008. The side effects of the recession were global and common people were affected as the result as prices increased and employment decreased. The solution lies in the tighter regulations regarding mortgage and investment companies. Mortgage Inflation in United States The housing crisis of 2008 was actually the starting point of a global recession with which the world is still fighting today. In this essay we will attempt to explain...
6 Pages (1500 words) Research Paper

The Inflation Rate and Exchange Rate of the Chinese Yuan and the US Dollar

... tools of trade to make wise decisions along the economic situations in the international markets. Inflation and stock markets are related because an increase in inflation results to subsequent decrease in the value of the stock market. The focus of the report is to evaluate the relationship of Chinese Yuan against the US dollar as far as the inflation rates and exchange rates are concerned. Aims and objectives of this report The overall objective in this report is to study the relationship between the inflation rate and exchange rate of the Chinese Yuan and the US dollar. The aims are to examine whether inflation has considerable influence and relationship to exchange rate of the nation in short or long run for China and USA...
10 Pages (2500 words) Research Paper

Unemployment and Inflation: Can We Find a Balance the rate of crime, suicide and the divorce rate heighten when unemployment increases. (O’Sullivan et al, 2008) One of the other major impacts on the society of unemployment is the money that is spent by government in form of the unemployment benefits; it also signifies a loss in the tax earnings which then mean that there is less spending in an economy and the companies are getting lesser revenue, thus slow down in the economic activity as whole.  Inevitably when there is discussing about government expenditure on these stimulus programs and benefits to lower the unemployment levels, there evolves the problem of inflation. This is usually caused as the increased expenditure and lower revenues increase the national debt, which can...
7 Pages (1750 words) Coursework

Finance and Accounting: Gross Domestic Product and Inflation and Interest Rate

..., the slowing down of the global markets coupled with strengthened dollar, and in adequate growth in wages poses a challenge to sustained growth. Consequently, the US economic growth remains the main anchor of the global economic recovery (Bureau of Economic Analysis, 2015). Inflation and Interest Rate The federal government has the mandate of managing the monitory policy in a manner that offers maximum employment while at the same time stabilizing prices. This is done directing monetary policy to meet a specific rate of interest rate. According to the Economist (2015), the Federal Reserve targets an inflation of 2% to achieve both maximum employment as well stabilize prices. The...
7 Pages (1750 words) Term Paper
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Research Paper on topic Inflation for FREE!

Contact Us