Nobody downloaded yet

Inflation:causes and solving - Article Example

Comments (0) Cite this document
Summary
The summary of the article helps to define inflation as a persistent rise in prices that cause the purchasing power of a nation to significantly drop. This is a normal economic syndrome as long as the annual rate or percentage remains comparatively low…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER96.3% of users find it useful
Inflation:causes and solving
Read TextPreview

Extract of sample "Inflation:causes and solving"

Download file to see previous pages The summary of the article helps to define inflation as a persistent rise in prices that cause the purchasing power of a nation to significantly drop. This is a normal economic syndrome as long as the annual rate or percentage remains comparatively low.Once the percentage rises over a pre-determined level, it is considered an inflation crisis And then it has its impacts across several facets of the economy.From the article, one can infer that expansive public spending as a result of budgetary surpluses, population growth, and rapid growth in demand are the root causes of inflation. By definition, a budgetary surplus is the amount by which government revenue exceeds government expenditure during a financial year. This excess of revenue over expenditure means the government has more money to inject into the economy and up the circulation of money in the economy. In an unrelated manner, the amount of money in circulation in a country's economy could result from the government printing an excess of money to deal with a crisis. This brings excess money to the disposal of citizens who would normally manifest their propensity to spend by a growth in their demand. As a result, prices end up rising at an extremely high speed to keep up with the currency surplus. This is called the demand-pull, in which prices are forced upwards because of a high demand.
On the other hand, population growth could be the direct effects of human factors like migration or high birthrates. That is to say the higher the birth rate, the higher the population at any particular time. Likewise when the number of people entering a country as immigrants outweighs the number of people leaving the country, the size of that country's population is bound to increase. Meanwhile, a growth in demand entails not only an increase in the quantity of demanded of goods and services, but also a complete rightward shift of the demand curve. According to macroeconomic theory (Lawrence & Terry, 2003) the impact of these factors in causing inflation can best be understood by looking at how they change the trend of both aggregate demand and supply in an economy.
Firstly, a budgetary surplus increases the amount of money in circulation in the economy. Matching such surplus to the population growth, means a surge in the aggregate demand for goods and services with a consequent increase in the spending power of individuals. Other factors being constant, the capacity of the country to produce goods and services is exceeded, leading to the category of inflation called demand-pull inflation. The article supports the above findings by holding that the size of increase in aggregate demand significantly exceeds real supply levels in a sustainable manner. As the increase in aggregate demand is unmatched by a similar increase in production, uncalculated consumption and the failure to nurture production lead to sudden increases in prices and hence an increase in purchasing power.
In an unrelated manner, the supply of money in an economy can increase when the government adopts a policy to print excess money in a bid to put a crisis under control. This view about the cause of inflation can be understood through a review of the quantity theory of money which says that an abnormal growth in the money supply in an economy would cause inflation. This happens because the extra money boosts the level of demand, and so causes demand-pull inflation.
The most resounding case in point is the hyperinflation in Zimbabwe scaling over 6,500% (six thousand five hundred percent). Such policy to increase the supply of money has the spin-off effects of injecting more money into the economy, as well as increases the citizen's disposable income. This increase in disposable income always translates into an increase in the propensity to consume and then to a consequent increase in the demand for goods and services. When an increase in the demand for goods and services is not parallel to the production and supply capacity of the economy, prices end up ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Inflation:causes and solving Article Example | Topics and Well Written Essays - 1000 words”, n.d.)
Inflation:causes and solving Article Example | Topics and Well Written Essays - 1000 words. Retrieved from https://studentshare.org/macro-microeconomics/1529912-inflationcauses-and-solving
(Inflation:Causes and Solving Article Example | Topics and Well Written Essays - 1000 Words)
Inflation:Causes and Solving Article Example | Topics and Well Written Essays - 1000 Words. https://studentshare.org/macro-microeconomics/1529912-inflationcauses-and-solving.
“Inflation:Causes and Solving Article Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.org/macro-microeconomics/1529912-inflationcauses-and-solving.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Inflation:causes and solving

Types of Inflation, Causes and how Inflation is Measured

... Inflation Introduction Inflation is a scenario whereby the trend of goods and services in an economy rises rapidly. Such a situation occurs when there is excessive money in circulation. This essay will focus on the various types of inflation, their causes, and their measurements. Types of inflation Demand-pull inflation This type of inflation occurs when the demand overwhelms supply, it makes the prices of commodities, and or services to rise. The increase in demand with respect to low supply will consequently lead to excess demand. It is important to note that, the higher demand will in turn pull up prices of commodities thus resulting to too much money circulating in an economy. This can be attributed in times of war, or rather... that...
4 Pages(1000 words)Essay

What causes inflation

...? Inflation and its Causes Inflation has been one of the major s that have been addressed in the economicworld and in order to properly understand it, one has to delve into all the aspects that are related to it. This paper will attempt to do just that as it aims to first identify what inflation is before delving deeper into issues that are related to it such as what are the main causes that bring about this situation. The paper will also look into the effects that inflation has on the economy and by extent the society as a result as it attempts to discover ways in which this situation brings about a difference in the way individuals live their lives. It will also look at some of the ways that an individual is able to calculate... that...
6 Pages(1500 words)Essay

What causes inflation in China

...? What causes inflation in China? Introduction Inflation is an economic phenomenon in which prices of goods and services increase gradually over a period of time. It is one of the most important economic problems facing by majority of the countries at present. Even developed countries and rapidly emerging countries are not free from the problems generated by inflation. China is the most rapidly developing country in the world at present. Yet, “China's inflation rate hit a 10-month high in February, as Lunar New Year festivities drove up food prices. Consumer prices rose 3.2% from a year earlier, with food prices up by 6% (China inflation...
6 Pages(1500 words)Essay

Inflation

.... Concretely, if one unit of bread costs $1 before and it now costs $2 for the same unit of bread, the increase in price can be attributed to inflaction. Inflation is typically measured by comparing the annual change in Consumer Price Index (CPI) or the basket of goods that people normally buy over time. The effect of inflation can either be good or bad. Inflation has the effect of decreasing the net value of money because of the rise of the price of commodities. For example, the $1,000 savings this year may only have the purchasing power of $900 next year due to rising prices caused by inflation. This is not good for investors and consumers alike. For...
3 Pages(750 words)Essay

Inflation

...unemployment rate of 7.8% and wage growth struggling to keep up with inflation, 2013 is looking to be another year of hardship. Causes of inflationary pressure Inflation refers to the upwards movement of the general price level in economy. Prices are determined in the free market economy through the interaction of the sellers and the buyers in the economy. Most economists consider that the inflationary pressure in the economy is caused from either the demand side (demand pull inflation) or the supply side (cost push inflation) pressure on the equilibrium condition in the market (P. J. Welch and G. F. Welch, 2009). Demand pull...
6 Pages(1500 words)Essay

Causes and costs of inflation

...Causes and Costs of Inflation Inflation is defined as the persistent increase in prices over a period of time. Inflation is measured by the Consumer Price Index, which is the cost of a basket of goods and services for an average consumer. Inflation is a cause of major concern amongst policy makers and public alike. The main cause of inflation is the increase in quantity of money supplied in the economy. The costs of inflation to the public include menu costs, shoeleather costs, inefficient allocation of resources, redistribution of income, uncertainty, and distortion of tax...
5 Pages(1250 words)Essay

Inflation

...21 March Importance of Price Stability in an Economy with respect to Inflation and High Rising Prices No consumer on this planet would like a situation of dealing with fluctuating prices with respect to the goods and services sold in the market. Stable prices eliminate all kinds of doubt and confusion on the part of the customer, while making it important for the producer to fix his costs and bring about cost effectiveness while trying to retain a certain amount of profit. In an economy, general price levels when stable are of keen interest to the consumers, thus. However, actual price stability refers to a situation when the prices of the goods and services do not change for a prolonged period of time. The general...
6 Pages(1500 words)Essay

Inflation

...growth. For instance, during recession, the central bank should lower interest rates, practice quantitative easing or print more money. This means more money supply into the economy; thus, increasing economic activities (Pettinger, 2012; Pg. 54). This may also cause inflation but makes it advantageous since the government gets more money to pay its debts. Another option suggested was the government to default by stopping repayment of part or all of the debts. This means it does not have to reduce its spending because of debts. On the other hand, an Economist Peter Eavis did a close analysis in 2012 towards identifying the European crisis. The crisis being in its fourth year by then but the policymakers...
5 Pages(1250 words)Literature review

Inflation and Its Major Causes

...of money. The major causes of inflation are as follows: The demand pull inflation The cost push inflation. The situation of demand pull inflation arises in the results of increase in the aggregate demand, but the supply remains same in the markets. So the prices rise, and the situation of inflation occurs. If the costs of the production rise in the market, then the prices of factors of productions also increase. Increase in costs of productions result in the rise of goods and services prices in the public markets. To solve the issue of inflation, the government has to introduce new strategies of...
1 Pages(250 words)Assignment

Inflation

...-year period. The country experienced high corruption and bureaucracy levels fuelled by the industrial licensing system known as the licensing raj. The post-1991 period showed attempts by the Indian government of opening up the economy. These were forced steps and, therefore, had to occur urgently since the country was facing bankruptcy caused by the balance of payment crisis. The collapse of the Soviet Union was significant since they supplied cheap oil to India. In this period, India faced an economic crisis coupled with the assassination of Rajiv Gandhi, a former prime minister. A new finance minister was introduced by the name Manmohan Singh, a free market champion and an economist (Picardo, 2015). His efforts...
2 Pages(500 words)Assignment
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 Article on topic Inflation:causes and solving for FREE!

Contact Us