Archive for June 30th, 2011
Causes And Consequences Of Inflation
Inflation can be defined as a general price level permanently. “Persistent” warns us of an important feature of inflation: it occurs at different times. “General”, warns the second: inflation occurs throughout the economy, where prices of many items will increase over the same period. Inflation reduces the value of money because each dollar buys less.
High rates of inflation can have serious social, economic and political. Some of the effects of rapid inflation are:
It can punish those on fixed incomes, pensioners and self funded retirees and because their incomes are not progressing as fast as prices, so that they can buy fewer goods and services.
Inflation usually share the income of low-income high-income, because fewer low-income properties such as properties, which can be tilted, and the jobs are, which is difficult to obtain a salary increase to help offset the effects inflation.
People are losing confidence in the currency of a store of value and, often, to borrow as much as possible to invest in ‘real’ assets like gold, houses and antiques, whose price tends to rise more quickly ‘ general inflation.
Return on capital investment forecasts become unreliable, and this makes companies reluctant to commit to long-term projects.
If the rate of inflation in a country is higher than that of its major trading partners, the ability of countries to compete in global markets has been damaged.
High inflation leads to higher interest rates.
Powerful entities – the unions, corporations, wealthy individuals – may be able to increase their share of national income at the expense of weaker groups – pensioners, the unemployed and other groups who depend on welfare. Thus, the persistently high inflation could threaten political and social stability.
There is no single cause of inflation. increase in the rate of inflation. The main causes of inflation are:
External factors such as changes in exchange rates or changes in commodity prices.
Excess demand in the domestic economy. Suppliers of labor and goods and services are trying to exploit the situation by raising prices. This is usually described as demand-pull inflation inflation.
If wages rise faster than the rate of increase in productivity, businesses find it necessary to raise prices to maintain profitability. This is known as cost-push inflation.
Board of Directors caused by rising prices can lead to an increase in general inflation, for example, increases in indirect taxes, increase the retail price of goods and services.
As we have seen what people think prices can actually affect the level of inflation, creating a self-fulfilling prophecy when people expect inflation to increase, they increase their prices This ensures that inflation is rising.