Battling Inflation Essay

1599 Words7 Pages
As prices begin to rise in various sectors of the economy, some businesses are continuing to tread lightly. Keeping costs down has assisted the US economy in balancing the control of inflation better than other countries emerging from the global recession, such as China and Europe. But with the US economy still recovering and inflation rates in other nations rising the concern of slipping back into another recession has become a very real issue. Factors such as supply and demand, price elasticity and inflation are all contributing factors to the outcome. Perhaps one of the most basic, and essential, concepts of economics is supply and demand. The law of supply and demand states that the price of any good adjusts to bring the quantity…show more content…
Trade balance is “the ratio of imported and exported goods…the balance is active if the export goods costs exceed the import goods' costs (surplus), otherwise the balance is passive (shortfall)” (Forex, 2011). Globalization has assisted in keeping down the cost of inflation by providing low cost imports from countries such as China by means of low wages. In recent years developing markets have started to become huge consumers of commodities, which is finally putting upward pressure on American prices for many globally traded goods” (Hilsenrath, 2011). Historically, the United States has been a nation of consumerism. Columnist Anup Shah (2010) asserts that consumption trends in the US follow the 80-20 rule, stating that “the wealthiest 20% of the world accounted for 76.6% of total private consumption”. However, consumerism in the United States doesn’t stop there. Because consumers have become so accustomed to certain norms it can be difficult to determine necessity from commodity. Some items, such as Starbucks, are sometimes put into the same category as necessities, such as gasoline. Economists use the Consumer Price Index (CPI) to measure consumer spending habits and the change in inflation rates. Some have even likened the CPI to “a tug of war between the prices of goods and the prices of services, playing out beneath the surface” (Hilsenrath, 2011). For years foreign investment has enabled the US to “have their cake and
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