Causes of inflation essay. Report On Inflation And Its Causes: [Essay Example], 555 words GradesFixer 2022-10-16
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Inflation refers to the sustained increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power of money – a loss of real value in the medium of exchange. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the consumer price index) over time.
There are several causes of inflation, which can be broadly classified into demand-pull and cost-push inflation.
Demand-pull inflation occurs when the overall demand for goods and services in an economy exceeds the available supply, leading to an increase in prices. This can be caused by a number of factors, including:
Economic growth: As an economy grows and becomes more prosperous, consumers have more disposable income and are able to purchase more goods and services. This increase in demand can put pressure on prices, leading to inflation.
Expansionary monetary policy: When the central bank increases the money supply, it can lead to more money chasing the same amount of goods, leading to higher prices.
Government spending: If the government increases its spending, it can lead to an increase in demand for goods and services, putting upward pressure on prices.
Increased exports: If a country experiences an increase in exports, it can lead to an increase in demand for domestic goods and services, leading to higher prices.
Cost-push inflation occurs when the cost of production increases, leading to higher prices for goods and services. This can be caused by a number of factors, including:
Increases in the cost of raw materials: If the cost of raw materials such as oil or other commodities increases, it can lead to higher prices for goods and services.
Increases in wages: If wages increase, it can lead to higher production costs and subsequently higher prices for goods and services.
Taxes and regulations: If the government increases taxes or imposes new regulations, it can lead to higher production costs and higher prices.
Inflation can have both positive and negative effects on an economy. On the positive side, it can encourage economic growth by providing incentives for businesses to invest and expand. On the negative side, it can lead to uncertainty and can erode the purchasing power of consumers, leading to reduced spending and economic activity.
To control inflation, central banks can use a variety of tools, including setting interest rates, controlling the money supply, and implementing fiscal policy measures. It is important for central banks to maintain price stability and to keep inflation at a moderate level in order to promote a healthy and stable economy.
The Causes And Effects Of Inflation Economics Essay
Keynes considers this type of inflation as the true inflation. Bounds Test results are given in Table 2. The third method is to directly or indirectly reduce the money supply by enacting policies that encourage reduction of the money supply. Though no conclusive proof may be cited, it is able to be asserted that following classes of human beings are laid low with inflation differently: Creditors and Debtors: Borrowers benefit and creditors lose for the duration of inflation due to the fact money owed is constant in rupee phrases. As a result, the cost of living will rise and the workers will demand higher wages. This will raise the cost of production. Fiscal deficits, fixed exchange rate When an economy operating under a fixed exchange rate has exhausted its sources of financing direct loans from the public, internal and external, the only tool you have left to finance the excess of expenditure over income is to borrow from the bank central.
Now, as the level of employment increases, the demand for workers rises progressively so that the bargaining position of the workers is enhanced. Rather, the loan- giving institution makes adequate safeguard against the erosion of real value. Use relevant economic theory, examples and academic literature to support your answer. It helps to decrease the burden which people have during inflation. These results are consistent with the findings of many other researches. Resources Gap: The underdeveloped countries generally try to industrialise themselves through public sector.
Free Causes Of Inflation And Importance Of Controlling It Essay Sample
This will help the people so that their living cost can be decreases. Essay on the Meaning of Inflation: Inflation and unemployment are the two most talked-about words in the contemporary society. It is hard to increase the exportation because the import tariff of Sri Lanka. Some people get such happy results. Similarly, Gal and Gertler 1999 construct the a kind of hybrid New Keynesian Phillips Curve model and claim that the main factors that affect inflation are the excess aggregate demand, inflation expectation and inflation inertia. The Monetarist Theory: The monetarist theory of demand-pull inflation is based on the quantity theory of money.
Maintaining this level of inflation rate is considered useful for economic development. In this model inflation is purely a monetary phenomenon. Besides, inflation also draws away the foreign investors. . If inflation happen, it is hard to ensure the investment bring any profits or revenue for them.
ESSAY ON "INFLATION : ITS CAUSES AND SOLUTIONS" ~ sir TAUHEED's TUITION CENTER
Higher profit induces owners of firms to distribute profit among investors or shareholders. In this paper we address precisely for inflation, this issue affects us and that both frightens and that despite efforts at all levels to support the advancement of science, it is impossible to control and combat. On the other hand, cost push inflation may occur if there is an increase in the costs of factor inputs, or any kind of supply shock. This results to the money printed is getting larger. From simple essay plans, through to full dissertations, you can guarantee we have a service perfectly matched to your needs. Thus, it redistributes income and wealth. The economic growth in India 4.
This can be illustrated graphically. However, speculators dealing in business in essential commodities usually stand to gain by inflation. Once the government curbs are lifted, the suppressed inflation becomes open inflation. Or Essay on Inflation By the beginning of the 1980s, double-digit rates of inflation had become so pervasive among industrialized economies that they were viewed as a major deterrent to global economic growth. There are some neccessity good which every family need it.
Essay on Inflation: Types Causes and Effects (With Diagram)
This assumption is valid only for homogeneous goods traded in organized and perfectly competitive markets, but most of the goods traded are heterogeneous and exchanges usually take place in markets that are far from perfect. In both these ways rate of inflation in different years is measured and compared. From simple essay plans, through to full dissertations, you can guarantee we have a service perfectly matched to your needs. If inflation is low, the opposite happens. This will add fuel to the inflationary fire. Every country hope to achieve a low inflation rate but it is not a easy job to realize it. Creditors and Debtors: Borrowers gain and lenders lose during inflation because debts are fixed in rupee terms.
The Keynesian Approach or Redistribution Argument: According to the Keynesian approach, inflation will promote growth in two ways- a by redistributing income from wage-earners with low marginal propensity to save to profit earners with high marginal propensity to save and invest ; and b by raising the nominal rate of return on investment relative to the rate of interest and. Credit Inflation: Being profit-making institutions, commercial banks sanction more loans and advances to the public than what the economy needs. Increase in money supply leads to inflation. Galloping and Hyperinflation: Walking inflation may be converted into running inflation. That is why government is then accused of causing inflation.
Essay on Inflation: Meaning, Measurement and Causes
When exportation increases, it means there is more job opportunity for the labor forces in India and the unemployment rate can be decreases. An individual may be interested in buying a house by taking a loan of Rs. Inflation exists when money supply exceeds available goods and services. Every country hope to achieve a low inflation rate but it is not a easy job to realize it. In the past, some of the world economies e. There may be an autonomous increase in business investment or government expenditure.