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Inflation - Essay Example

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Inflation Name: Institution: Course: Tutor: Date: In an economy, there are times at which goods and services cost rises so that a unit currency will buy less than a previous time when it could buy more. With this general increase in the price of commodities, the currency in use losses it high purchasing power and weakens in relation to the prevailing conditions of the economy (Berlatsky, 2013, p5)…
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Download file to see previous pages There are different reasons that contribute to inflation in any economy which varies in terms of supply and demand of commodities in supply and the means of exchange (Baumol & Blinder, 2011, p 37). According to economists, moderate or low economic inflation can be caused by the increase in demand of commodities or the scarcity on the side of suppliers. On the other hand, hyperinflation is attributed to high supply of currency in the market in which the individual who possesses it buys commodities at high prices than they ought to cost under normal circumstances. This has ever been witnessed in different countries where currencies have inflated to trigger an economic threat to the businesses within the society. In attempts to curb the inflation from rising to hyperinflation, various methods have been implemented which have led to stabilisation of the economy and improve the predictability of the market conditions. In United Kingdom, UK inflation happened and the country implemented various methods that led to balancing of the economy so that investors could continue to invest in that economy. In looking at the effects of inflation, it is good to consider the various things that lead to it and means that can be used to control it with a practical example of a country that has ever been affected and implemented some methods they used to control it with a focus at the advantages and disadvantages of those methods. In the economy, there are different explanations that economists give as the causes of the economic inflation that affect nation; these are given according to the different types of inflation that are found within an area. In general, the general causes of inflation plays around supply and demand of various things in the market that have direct influence of on the prices of the commodity to be bought. This means that abundance or scarcity of a particular determinant of trade i.e. goods or services and means of exchange, can cause prices of the commodities to rise within a short period. Following this perception, the abundance on the side of demand causes prices to go high because of the competition that arise from the different buyers who are interested in a particular commodity. The other perspective that causes inflation is the scarcity on the side of the supply where only little products over which buyers compete to attain making the sellers to determine the buyer through high prices that are attainable by just a few of them. From this perspective, there are two major categorisation of inflation in the economy, which are dependent on supply and demand in the market where individuals trade and which include moderate and high rate or hyperinflation (Credan, 2006, p45). Moderate inflation is caused by different situation of the demand and supply of the products in the market and can result from increase in the demand for products or reduction of supply. As a result of increased demand for goods or services, many customers that require a particular product contest for it financially and can lead to high prices of such products as in accordance to the law of demand that says that the higher the demand, the lower the supply and hence, the higher the price of the commodity. This results to inflation because ...Download file to see next pagesRead More
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