The Inflation Definition And Influences Essay

Inflation is one of the most talked about words in society that causes a big problem in economics today. Inflation is an increase in the overall prices of goods and services and a decline in the purchasing value of money. This exists when the money supply surpasses the goods and services that are available. For this commentary, I chose to pick the article In a Venezuela Ravaged by Inflation, ‘a Race for Survival’ that deals with the topic inflation.

Inflation is when there in an increase in price of goods and service, causing there to be a fall in the currency as lesser goods and services can be brought by each unit of currency due to the rise in price. Rapid economic growth will often lead to inflation. When the economy is rapidly growing, a company will need to employ more employees, resulting to a fall in unemployment rate. As unemployment rate falls, lesser people will be looking for jobs and the company will find it harder to fill up job vacancies. This will cause the salaries of the workers as well as company spending to increase, resulting in the company passing on the extra costs to the consumer. Together with the raise in salaries for the employees, they will have more to spend, resulting in an increase in an aggregate demand. All this will result in rapid economic growth, where the increase in price will cause inflation to occur.

There are only a few ways to increase production, which include hire more workers, increase hours, buy more equipment, and take advantage of technology to produce more. The government must form a way that the economy doesn’t grow too slow or fast so they can prevent disastrous events. The importance of modern currency lies in its purchasing power. Inflation signals the rising prices, but the way to think about it isn’t like that, but that the currency’s purchasing power decreases. With hyperinflation, fixed loans are impossible because nobody wants to risk it when the money can potentially become worthless. With moderate inflation, it can destroy wealth if it isn’t managed properly. Inflation is good for those who owe debt, but bad for those who lend money. Inflation may be bad, but deflation is worse. Prices fall because the economy is broken, but now the economy is broken because the prices have fallen.

Ronald Reagan once said, “ In a world wracked by hatred, economic crisis, and political tension, America remains mankind's best hope.”America may be mankind’s best hope, but will it remain that way? America is the beacon for freedom and equality, but with the recent election, it may difficult for us to remain a country full of diversity and hope. In order for the United States economy to prosper, the government must control inflation rates, raise employment rates, and change the current income inequality ratio.

The use of inflation determines the gain of benefits that will be put into place. An

This task request will be focussed on providing input for the development of Inflation Working Paper (WP) currently in draft phase. The recent version of the WP is attached for your reference purpose only.

In economics, with the inflation is a rise in the actual general level of prices of goods and services in an economy from over a period of time. When the general price level rise, such as each of the units currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power4 per unit of money. This therefore means that with the loss of real value in the medium of exchange and unit of account within the given and actual economy. With a chief measure for example and the price of inflation is within the given inflation rate, the annualised percentage change within a general price index over time in which is normally the consumer price index.

It widely recognized that the monetary policy within a country should be primarily concerned with the pursuit of price stability. However, it is still not clear how this objective can be achieved most effectively. This debate remains unsettled, but an increasing number of countries have adopted inflation targeting as their monetary policy framework. (Dr E J van der Merwe, 2002) This topic of Inflation targeting is a subject which immediately conjures different perceptions from different people. Many feel that low inflation should be a main aim of monetary policy, while others (such as trade union activists) believe that a higher growth rate to stimulate jobs should be the main concern.

Why is inflation bad for the American economy? Imagine going into the popular local food market or gas station several times a week. After a couple of weeks, imagine going into these stores and noticing the prices have steadily increased over the past few months. This is called inflation, and it is causing many problems in the United States. There are three different types of inflation: demand-pull, cost-push, and built-in. Demand-pull inflation occurs when prices increased because of such high demand. Cost-push inflation is when prices surge resulting from high input costs. Built-in inflation is when prices continue to rise after any natural causes. The inflation occurring in America is a demand-pull. Inflation has affected the United

A lot of literatures have already studied about the inflation and inflation prediction and in this paper literature review will be discussed from the theoretical aspect and empirical aspect. The researches of the inflation, which are studied, by a lot of scholars in the field of economics have been conducted for a long time especially during the 1970s and it is the heyday when people would like to pay more attention to research the inflation. The inflation has become a hot topic among the economic life and social life since 1987. However, no matter whether it is in the western economic field or in the Chinese economic field, people have different definitions on the inflation and so far there is no unified opinion and conclusion can be accepted generally by everyone. For example, Wyplosz and Burda (1997), Blanchard (2000), and Barro (1997) define that inflation is a sustained rising in the overall price level of products and services in an economy throughout the time period. By contrast, Zha and Zhong (2016) define that inflation is considerable as the mechanism to improve economic growth. In general, the common definition of the inflation is that the inflation is a continuous rising process in the aspect of price. In other words, the value of the currency decreases continually.

Naturally, during an inflationary period it becomes very difficult for the government to fulfill its macroeconomic targets. Almost all targets, such as GDP growth, price inflation, bank borrowing, trade deficit, budget deficit, become difficult to achieve. This questions the credibility of the government. Costs of development project and non-development expenditure increase, due to which the government needs more funds the following year by the amount of inflation to keep economic activity at the level of the former year.

The relationship between inflation and unemployment is a topic, which has been debated by economists for decades. It is this debate that has made the opinions about it evolve. In this essay, the controversial topic will be discussed by viewing different economists’ opinions on that according to time sequencing.

Monetarist view relates to the work of Milton Friedman. The monetarist theory of inflation asserts that the general price level would rise only due an increase in money supply, but will not be proportionate. According to monetarists, money supply is the dominant but not exclusive determinant of both prices and the output level in the short run, but in the long run money supply only determines the level of prices. The output level in the long run is not determined by money supply. Monetarists emphasize so much on the role of money and therefore hold that money supply is very crucial tool of monetary policies in stabilization of the economy as compared to fiscal policies. Milton Friedman stated as follows “inflation is always and everywhere monetary phenomenon” that will arise when money supply rises at a faster rate than the growth of national output.

There are different influences that cause inflation such as energy, food, commodities, and other goods and services. The entire economy is affected by rise of the cost of living. It also affects the cost of operating a business, borrowing money, mortgages, corporate and government bond yields, and every other aspect of the economy. There are several advantages of inflation in the economy. Some include moderate rates of inflation which allows prices to adjust. This is considered a sign of a healthy economy. With economic growth available we usually get a generous amount of inflation. Also moderate inflation rate reduces the actual value of debt. If there is a reduction, the real value of debt increase leads to a squeeze on usuable income.

Inflation is blazing subject that delays the economic development of the country. It is becoming extra hectic to economists, politicians and even people also. Factors on both demand and supply effect the inflation. So the stabilization strategies ought to consequently focus on both demand manipulation as well as