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The economy in California - Essay Example

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In order to understand such effects analytically, this paper is going to discuss the various implications that inflation poses for the economy, with focus on the positive, and, more importantly, the negative outcomes of inflation to an economy. …
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The economy in California
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The economy in California

Download file to see previous pages... In the course of this assessment and analysis, various factors are considered in light of their effects and implications on the economy. These factors are divided according to their level of influence and their scope in regards to how each individual entity can deal with them (Melvin & Boyes, 122). As such, economics as a social science incorporates aspects of creation, circulation and utilization of commodities and services within an economy and the various factors that affect this cycle. For a proper and more insightful analysis of these factors, the concepts of micro and macroeconomics are introduced to deal with varying perspectives of the way in which various dynamics impact on the economy. Microeconomics often deals with aspects that are within a given economic entity’s scope, and refers to factors that the entity has control over. On the other hand, macroeconomics lays emphasis on factors that an economic entity has little or no control over, especially factors that have a national, transnational or global scope. An example of a factor that affects the economy on a national perspective is the inflation rate, or the level of inflation within the economy. As such, the analysis of this factor forms an insightful upshot from which the impact of macroeconomic factors can be viewed in relation to the economy.
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On a general platform, inflation can be described as the gradual increase in the prices of commodities and service provision within an economy over a given period. This is occasioned by the value of the currency dropping, whereby the financial might of a unit of currency drops and it is able to purchase lesser and lesser items as the level of inflation increases....
On other platforms, inflation refers to an average increase in the money circulating within an economy, as occasioned by the value of the currency dropping warranting the need for more legal tender to complete a transaction (Melvin & Boyes, 134). Inflation is caused by a number of factors, ranging from government expenditure exceeding the revenues, or the private sector causing shortfalls in output resulting in demand exceeding the supply of goods and services. Moreover, increased production costs also result in increased prices of goods thereby resulting in inflation. The measure for inflation is carried out through the price index that monitors the overall pricing of consumer goods and services over a given period. The general percentage change in price roughly implicates the inflation level within the economy. The impacts of inflation can be both positive and negative in some instances. However, its negative force is more impacting than the positive effects (McEachern, 187). There are levels of inflation, with low levels of inflation generally considered not as harmful. However, zero and high inflation are considered harmful to any economy. The major impact of inflation is that it creates a financial shortage for individuals who are surviving on a fixed income. This is occasioned by the lack of income dynamism in relation to the rate of inflation (McEachern, 222). The amount of disposable income for such individuals decreases, thereby leading to less expenditure, further enhancing the inflation rate. This results in minimized savings, as more money is used in purchases that were previously less straining on the financial muscle. However, inflation can also result in hidden tax raises especially in ...Download file to see next pagesRead More
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