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.
Nobody downloaded yet

Economic inflation - Essay Example

Comments (0)
Summary
Inflation is the consistent and sustained general price increase of commodities over a period of time leading to fewer goods being purchased with every unit of the current currency. Inflation indicates a loss in the purchasing power based on each unit of money within an economy. …
Download full paper
GRAB THE BEST PAPER
Economic inflation
Read TextPreview

Extract of sample
Economic inflation

Download file to see previous pages... Inflation is the consistent and sustained general price increase of commodities over a period of time leading to fewer goods being purchased with every unit of the current currency. Inflation indicates a loss in the purchasing power based on each unit of money within an economy. This is measured through the consumer price index over specified duration of time (Hart, 2009). There are two major causes of inflation in any economy which are the demand-pull inflation and the cost-push inflation both of which will be discussed below in detail and their effects explained as well. Causes The demand-pull inflation occurs when the demand of the goods or services exceed the ability to produce them or exceed the supply. Suppliers start increasing the prices of the reduced goods and services when they start realizing its diminishing supply. If this continues, the central bank starts increasing the supply of money as a reaction to the aggregate demand. With the increase in money supply in circulation, businesses cannot increase the production and hence supply remains constant for a short while but this leads in the long run to an increase in equilibrium and prices rise resulting therefore to inflation (Tucker, 2012). According to the illustration, Demand moves from D0 to D1, the supply remains constant for a while but then the equilibrium shifts from A to B leading to price increase and hence inflation. Source: http://econrsrch/wklyltr/2000/el2000-21.html. The cost-push inflation is the other cause of inflation where there is an increase in cost of production which ultimately leads to an increase in the prices of raw materials and wages. This increased cost by the firms is passed on to consumers. The cost-push inflation is caused by a monopoly company, inflation in the wages, natural disasters, when the natural resources deplete, when the foreign exchange rates fall leading to a reduction in the imports or by the government when it increases its taxation (Tucker, 2012). All the above mentioned situations lead to a reduction in supplies. In the illustration, when the production cost increases caused by any of the above mentioned factors, the supply reduces from S0 to S1. The high demand and the reduced supply leads to a shift in the equilibrium and ultimately an increase in the price level from Z to Y causing inflation to take place. Source: http://econrsrch/wklyltr/2000/el2000-21.html. Effects There are positive and negative effects of inflation. The positive effects of inflation include the fact that with inflation, the central banks adjust the interest rates as a way to mitigate the economic recession. This then leads to a ripple effect as banks also adjust their interest rates causing more people to take up loans and mortgages in a bid to deal with the consistently increasing prices and diminished supply. The banks therefore benefit from all this even though mainly it is for a short while depending on how long the inflation last (if it lasts for long, the loose as people will be unable to repay the loans and mortgages). The other positive effect is that with the inflation looming, investment is directed to non-monetary projects which otherwise suffer when there is no inflation as people do not get time to invest their time and energy on them but with inflation they become able to (Dwivedi, 2010). The negative effects however surpass the positive ones. These negative effects range from loss of employment leading to massive unemployment as companies which cannot afford to pay wages dismisses their workforce leaving only a few who are overworked with no pay increase while others close their doors as they declare bankruptcy. There is also the fact that people start reducing their spending and usage rates as commodities become rare or the money to buy them dwindles causing a change in the number of meals per day, others go hungry and homeless as they fail to repay to mortgages or their other debts ...Download file to see next pagesRead More
Comments (0)
Click to create a comment or rate a document
CHECK THESE SAMPLES - THEY ALSO FIT YOUR TOPIC
Economic Policy Recommendation. Unemployment and Inflation: Can we find a balance
This paper explores the relationship between inflation and unemployment and identifies an economic problem which economies face stemming from the business cycle of economic growth.
10 Pages(2500 words)Essay
The significance of inflation expectations in the monetarist Phillips Curve and t0he implications for the conduct of economic policy
Major economies of the world have been affected by it and economic analysts throughout the world have put in their expertise to curtail the damages that inflation is capable of doing to an economy.
6 Pages(1500 words)Essay
The Current Economic Situation Marked by High Unemployment and Low Inflation
This essay gives an explanation of phenomenon of the contemporary economic trends that appeared in the Western Economies that witnessed existence of both high unemployment and high inflation at one and the same time. The researcher also the salient factors as well as requisite monetary and fiscal measures.
3 Pages(750 words)Essay
Why Do Market Economies Need Government United Kingdoms Economic growth, Inflation and Unemployment
Need of Government for Market Economies. Market economies need governments for a number of key reasons: i) Governments can keep track on formation of monopolistic or oligopolistic powers in a market economy. Monopolistic and oligopolistic structures can form within a market economy and lead to dominance of some suppliers in their respective markets.
10 Pages(2500 words)Essay
Inflation
In common usage inflation refers to the state of the economy when the money supply is much higher than the physical quantity of goods available in the economy. According to Keynes, inflation refers to that phase of rise in the general price level after the output in the economy grows beyond the full employment level of output (Frisch, 1983).
6 Pages(1500 words)Essay
Money Supply, Inflation and Economic Growth: An Empirical Study
Economists have found many divergent observations in their empirical analyses. There is a non-uniform evidence of the relationship between money supply, inflation and economic growth among countries. The pattern of relationship is uni-directional in some cases and bi-directional in others.
7 Pages(1750 words)Essay
Economic Growth Of GDP, Unemployment And Inflation For 5 Years Of A Country - Japan
One distinguished attribute of the economy is how manufacturers, dealers, and distributors work mutually in strongly-weaved clusters called keiretsu. A second essential aspect has been the assurance of life span employment for a significant segment of the urban labor strength.
6 Pages(1500 words)Essay
Inflation
ce, in the 2007, European economies considered improving such conditions; however, the sudden effect of the global credit set in and changed many things including: 4. The ratio of debt to GDP increased- The rise in debt levels and the fall of GDP is a crisis. With increased
5 Pages(1250 words)Literature review
Is there an inverse relationship between inflation and unemployment ( Phillips Curve). Do unemployment rates give a realistic picture of differences in economic activity in Britain and Europe
According to this relationship when there are more people employed in an economy the output increases, so do the wages from the labor force. The increase in wages means that people have more money to spend which increases their demand for goods and services and ultimately
1 Pages(250 words)Essay
Inflation and Government Economic Policies
Supply-side factors, on the other hand, triggers rise in the price of commodities where the rise in price of critical raw materials makes producers
2 Pages(500 words)Essay
Let us find you another Essay on topic Economic inflation for FREE!
Contact us:
+16312120006
Contact Us Now
FREE Mobile Apps:
  • About StudentShare
  • Testimonials
  • FAQ
  • Blog
  • Free Essays
  • New Essays
  • Essays
  • The Newest Essay Topics
  • Index samples by all dates
Join us:
Contact Us