The Effect Of Inflation On Economic And Social Implications Of High Inflation Essay

1463 WordsDec 15, 20166 Pages
Introduction Inflation is a sustained increase in the aggregate or general price level in an economy, which in turn increases the cost of living. In the UK the rate of inflation has varied a lot from 25% a year in 1974 to the deflation in the 1920s and 1930s. (Economicshelp.org, 2016) I will be briefly outlining the two different causes of inflation before analysing the negative economic and social implications of high inflation. There’s also other implications like political implications and moral issues of citizens. I will also be demonstrating the implications in the case study of Venezuela. The primary causes of inflation are either excess aggregate demand or cost-push factors. Figure 1 shows as the AD increases, the price levels also increase this is due to AD growing at an unsustainable rate. This is called demand-pull inflation, the unsustainable growth puts pressure on scarce resources and a positive output gap. This results when actual output Is larger than potential output. Employees could be asked to work overtime. A positive output gap is identified with countries like Argentina and Russia in the late 1990’s or India and China now, these countries economies are over heating because of a rapid and rising demand. As firms reach full employment levels, the prices increase leading to inflation. Employees can get higher wages which increase their disposable income. Cost push Inflation is caused by supply side factors and occurs when prices rise due to high

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