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Inflation: Conclusion

When the Going Gets Expensive

❶Such inflation is called demand-pull inflation henceforth DPI. Sundus These are old postings, for new postings i will have quotations in essays….

Essays on Effects of inflation

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What’s the Difference Between Inflation and Cost of Living?

But unfortunately the government has not met with success in getting rid of inflation. The rise in prices goes non-stopped, some suggest that there should be demonetization of currency, but the government thinks that it is an irregular method and will create doubts in the minds of the public about the stability of the government.

The rise in the prices of petrol has affected the prices in our country. So we have to import a huge amount of oil every year.

Moreover no step has been taken against the traders who are mainly responsible for unreasonable rise in the prices.

I want to get you on facebook for more help in future. Advice i warm welcome. Farah Sis I would help you, but to be frank I am having my papers in academy, due to which im too much stuck. Explanation Is very nice and affective. I used this in morning Assembly and i got Alot Claps. Sundus These are old postings, for new postings i will have quotations in essays…. No new postings uptill now. My question is which inflation has increase more in last 13 years in pakistan…..????? Ayesha Khan Miss thank you for your appreciative feedback and i whole heartily thank you for the criticism too.

I just myself need help sometimes. I would really be very obliged. Aliza It is very simple and useful essay which is helpful to clear my concept about inflation. Thank youu sooooooooooooooooooo much.. Yes you are right inflation is a very big problem of our country. But how we solve this problem??? Gud effort…One thing that i noted z…u should kept in mind that legth of every paragraph should b same…it will make a positive impact on reader..

Mr Sanjay do you an easy for me on inflation of electrical material for last 4 years because i m an electrical contractor and i have completed a project at 4 years old quotation and consultant required a latter for reason of escalation.

Good one,now i know why pakistan is not doing so well in economy. I am not an Indian. You are commenting using your WordPress. You are commenting using your Twitter account.

You are commenting using your Facebook account. Notify me of new comments via email. Notify me of new posts via email. Main menu Skip to content. Leave a Reply Cancel reply Enter your comment here Thus, DPI is caused by a variety of factors. In addition to aggregate demand, aggregate supply also generates inflationary process. As inflation is caused by a leftward shift of the aggregate supply, we call it CPI.

CPI is usually associated with the non-monetary factors. CPI arises due to the increase in cost of production. Cost of production may rise due to a rise in the cost of raw materials or increase in wages.

Such increases in costs are passed on to consumers by firms by raising the prices of the products. Rising wages lead to rising costs. Rising costs lead to rising prices. And rising prices, again, prompt trade unions to demand higher wages.

Thus, an inflationary wage-price spiral starts. This causes aggregate supply curve to shift leftward. This can be demonstrated graphically Fig. Below the full employment stage this AS curve is positive sloping and at full employment stage it becomes perfectly inelastic.

Now, there is a leftward shift of aggregate supply curve to AS 2. With no change in aggregate demand, this causes price level to rise to OP 2 and output to fall to OY 2. With the reduction in output, employment in the economy declines or unemployment rises. Thus, CPI may arise even below the full employment Y f stage. It is the cost factors that pull the prices upward. One of the important causes of price rise is the rise in price of raw materials.

For instance, by an administrative order the government may hike the price of petrol or diesel or freight rate. Firms buy these inputs now at a higher price.

This leads to an upward pressure on cost of production. Not only this, CPI is often imported from outside the economy. Increase in the price of petrol by OPEC compels the government to increase the price of petrol and diesel. These two important raw materials are needed by every sector, especially the transport sector.

As a result, transport costs go up resulting in higher general price level. Again, CPI may be induced by wage-push inflation or profit-push inflation. Trade unions demand higher money wages as a compensation against inflationary price rise. If increase in money wages exceeds labour productivity, aggregate supply will shift upward and leftward. Firms often exercise power by pushing up prices independently of consumer demand to expand their profit margins.

Fiscal policy changes, such as an increase in tax rates leads to an upward pressure in cost of production. For instance, an overall increase in excise tax of mass consumption goods is definitely inflationary. That is why government is then accused of causing inflation. Finally, production setbacks may result in decreases in output. Natural disaster, exhaustion of natural resources, work stoppages, electric power cuts, etc.

In the midst of this output reduction, artificial scarcity of any goods by traders and hoarders just simply ignite the situation. Inefficiency, corruption, mismanagement of the economy may also be the other reasons. Thus, inflation is caused by the interplay of various factors.

A particular factor cannot be held responsible for inflationary price rise. When they act as buyers they want prices of goods and services to remain stable but as sellers they expect the prices of goods and services should go up.

The old people are in the habit of recalling the days when the price of say, meat per kilogram cost just 10 rupees. Today it is Rs. This is true for all other commodities. When they enjoyed a better living standard. Imagine today, how worse we are!

This goes unusually untold. When price level goes up, there is both a gainer and a loser. To evaluate the consequence of inflation, one must identify the nature of inflation which may be anticipated and unanticipated. If inflation is anticipated, people can adjust with the new situation and costs of inflation to the society will be smaller. In reality, people cannot predict accurately future events or people often make mistakes in predicting the course of inflation.

In other words, inflation may be unanticipated when people fail to adjust completely. This creates various problems. During inflation, usually people experience rise in incomes. But some people gain during inflation at the expense of others. Some individuals gain because their money incomes rise more rapidly than the prices and some lose because prices rise more rapidly than their incomes during inflation.

Thus, it redistributes income and wealth. Though no conclusive evidence can be cited, it can be asserted that following categories of people are affected by inflation differently: Borrowers gain and lenders lose during inflation because debts are fixed in rupee terms.

When debts are repaid their real value declines by the price level increase and, hence, creditors lose. An individual may be interested in buying a house by taking a loan of Rs. The borrower now welcomes inflation since he will have to pay less in real terms than when it was borrowed. Lender, in the process, loses since the rate of interest payable remains unaltered as per agreement. However, if in an inflation-ridden economy creditors chronically loose, it is wise not to advance loans or to shut down business.

Never does it happen. Rather, the loan- giving institution makes adequate safeguard against the erosion of real value. These people suffer a reduction in real income when prices rise. Similarly, beneficiaries from life insurance programmes are also hit badly by inflation since real value of savings deteriorate. People who put their money in shares during inflation are expected to gain since the possibility of earning business profit brightens.

Higher profit induces owners of firms to distribute profit among investors or shareholders. Anyone earning a fixed income is damaged by inflation. Sometimes, unionized worker succeeds in raising wage rates of white-collar workers as a compensation against price rise. But wage rate changes with a long time lag. In other words, wage rate increases always lag behind price increases. Naturally, inflation results in a reduction in real purchasing power of fixed income earners.

On the other hand, people earning flexible incomes may gain during inflation. The nominal incomes of such people outstrip the general price rise. As a result, real incomes of this income group increase. It is argued that profit-earners gain from inflation. Profit tends to rise during inflation. Seeing inflation, businessmen raise the prices of their products. This results in a bigger profit. Profit margin, however, may not be high when the rate of inflation climbs to a high level.

However, speculators dealing in business in essential commodities usually stand to gain by inflation. Black marketeers are also benefited by inflation. Thus, there occurs a redistribution of income and wealth. It is said that rich becomes richer and poor becomes poorer during inflation. However, no such hard and fast generalizations can be made. It is clear that someone wins and someone loses from inflation. These effects of inflation may persist if inflation is unanticipated.

However, the redistributive burdens of inflation on income and wealth are most likely to be minimal if inflation is anticipated by the people. With anticipated inflation, people can build up their strategies to cope with inflation. If the annual rate of inflation in an economy is anticipated correctly people will try to protect them against losses resulting from inflation.

Workers will demand 10 p. Similarly, a percentage of inflation premium will be demanded by creditors from debtors. Business firms will also fix prices of their products in accordance with the anticipated price rise. However, it is difficult to anticipate properly every episode of inflation. Further, even if it is anticipated it cannot be perfect. In addition, adjustment with the new expected inflationary conditions may not be possible for all categories of people.

Thus, adverse redistributive effects are likely to occur. Finally, anticipated inflation may also be costly to the society. Mere holding of cash balances during inflation is unwise since its real value declines. That is why people use their money balances in buying real estate, gold, jewellery, etc.

Such investment is referred to as unproductive investment. Thus, during inflation of anticipated variety, there occurs a diversion of resources from priority to non-priority or unproductive sectors.

Inflation may or may not result in higher output. Below the full employment stage, inflation has a favourable effect on production. In general, profit is a rising function of the price level. An inflationary situation gives an incentive to businessmen to raise prices of their products so as to earn higher doses of profit.

Rising price and rising profit encourage firms to make larger investments. As a result, the multiplier effect of investment will come into operation resulting in higher national output. However, such a favourable effect of inflation will be temporary if wages and production costs rise very rapidly.

Further, inflationary situation may be associated with the fall in output, particularly if inflation is of the cost-push variety. Thus, there is no strict relationship between prices and output. An increase in aggregate demand will increase both prices and output, but a supply shock will raise prices and lower output.

Inflation may also lower down further production levels. It is commonly assumed that if inflationary tendencies nurtured by experienced inflation persist in future, people will now save less and consume more. Rising saving propensities will result in lower further outputs. One may also argue that inflation creates an air of uncertainty in the minds of business community, particularly when the rate of inflation fluctuates.

In the midst of rising inflationary trend, firms cannot accurately estimate their costs and revenues. Under the circumstance, business firms may be deterred in investing.

This will adversely affect the growth performance of the economy. However, slight dose of inflation is necessary for economic growth. Mild inflation has an encouraging effect on national output. But it is difficult to make the price rise of a creeping variety.

High rate of inflation acts as a disincentive to long run economic growth. The way the hyperinflation affects economic growth is summed up here. We know that hyperinflation discourages savings.


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Essay on the Types of Inflation: As the nature of inflation is not uniform in an economy for all the time, it is wise to distinguish between different types of inflation. Such analysis is useful to study the distributional and other effects of inflation as well as to recommend anti-inflationary policies.

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Inflation is defined as a continuous process of raising prices, or whatever it is, a continued decline in value of money. Money loses value when the can not buy the same quantity of goods than before. 2. Lessons From Inflation. Overheating.- It is said that there is overheating in the economy when there is a slight increase in prices.

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- Objective: The effect of inflation on the job market The Effects of inflation on the Job Market In the major industrial countries, low unemployment usually creates inflationary pressures. But during the recent economic expansion in the United States, prices have held steady despite low unemployment. dissertation sociologie exemple Buy Essay On Inflation Effects writing an admission essay junk food argument essay about abortion.

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The effects of inflation on the labor market Essay. Objective: The effect of inflation on the job market The Effects of inflation on the Job Market In the major industrial countries, low unemployment usually creates inflationary pressures. Sep 03,  · Essay on Inflation Inflation and Total Factor Productivity The lowering of overall price levels. Demand-pull inflation: Occurs when consumers want to buy more goods and services than producers supply. Cost-push inflation: Occurs when producers and Secondary Effects; Economics Essay Notes - Words; The Universe - .