Inflation Cause, Effects and Remedies - 11309 Words

Inflation It’s causes, effect and remedies. By: Subrat Choudhury Inflation and Deflation I INTRODUCTION Inflation and Deflation, in economics, terms used to describe, respectively, a decline or an increase in the value of money, in relation to the goods and services it will buy. Inflation is the pervasive and sustained rise in the aggregate level of prices measured by an index of the cost of various goods and services. Repetitive price increases erode the purchasing power of money and other financial assets with fixed values, creating serious economic distortions and uncertainty. Inflation results when actual economic pressures and anticipation of future developments cause the demand for goods and services to exceed the supply†¦show more content†¦Economic historians have identified the 16th to early 17th centuries in Europe as a period of long-term inflation, although the average annual rate of 1 to 2 percent was modest by modern standards. Major changes occurred during the American Revolution, when prices in the U.S. rose an average of 8.5 percent per month, and during the F rench Revolution, when prices in France rose at a rate of 10 percent per month. These relatively brief flurries were followed by long periods of alternating international inflations and deflations linked to specific political and economic events. The U.S. reported average annual price changes as follows: 1790 to 1815, up 3.3 percent; 1815 to 1850, down 2.3 percent; 1850 to 1873, up 5.3 percent; 1873 to 1896, down 1.8 percent; 1896 to 1920, up 4.2 percent; and 1920 to 1934, down 3.9 percent. This extended history indicates a recurring sequence of inflations, linked to wartime periods, followed by long periods of price stability or deflation. Consumer prices accelerated during the World War II era, rising at an annual average rate of 7.0 percent from 1940 to 1948, and then stabilized from 1948 to 1965, when the annual increases averaged only 1.6 percent, including a peak of 5.9 percent in 1951 during the Korean War. In the mid-1960s a chronic inflationary trend began in most industria l nations. From 1965 to 1978 American consumer prices increased at an average annual rate of 5.7 percent, including a peak ofShow MoreRelatedInflation Cause, Effects and Remedies11320 Words   |  46 PagesInflation It’s causes, effect and remedies. By: Subrat Choudhury Inflation and Deflation I INTRODUCTION Inflation and Deflation, in economics, terms used to describe, respectively, a decline or an increase in the value of money, in relation to the goods and services it will buy. Inflation is the pervasive and sustained rise in the aggregate level of prices measured by an index of the cost of various goods and services. Repetitive price increases erode the purchasing power of money and other financialRead MoreInflation1301 Words   |  6 PagesInflation, Types, Causes, Impacts and Remedies Inflation In  economics,  inflation  is a rise in the general  level of prices 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 also reflects an erosion in the  purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy  A chief measure of price inflation is the inflation rateRead MoreThe Keynesian Model Of Economics Essay897 Words   |  4 Pagesreserve, regulating the level of government expenditures, creating private property rights, and setting tax rates.† () A government will implement policies to help control, or in some case, help remedy an economic crisis. This essay will be inclusive of three governmental policies, implemented after 1970, to remedy and economic crisis, as well as evaluate the policies effectiveness. This essay will alp provide a brief explanation of how the Keynesian model of economics was applied to the economic crisesRead MoreThe International Economy And Its Far Reaching Financial Crises864 Words   |  4 Pagesthere is a need for an LOLR (international lender of last resort) due to the fact that international capital flows are not only immensely volatile but also influential in destabilizing other countries. Many argue that an LOLR can help mitigate the effects of instability and help countries facing a crisis to restabilize. In industrialized countries, domestic central banks have the ability to do this with the lender of last resort operation in which the central bank lends freely during a financial crisisRead MoreThe Impact Of Neoclassical Economics On The Economy Essay1344 Words   |  6 PagesEconomic theory. Smith suggested that minimal intervention should be required regarding government policy as the laws of supply and demand will be self-correcting. John Maynard Keynes was an important figure that worked to apply fi scal policy that would remedy an economic depression. Keynes’s idea of fiscal policy is the means by which government adjusts its spending levels and tax rates to monitor and influence the economy. Further, Keynes is known as the father of â€Å"Mixed Economy†, in which both the privateRead MoreEvaluating Fiscal Policy Alternatives1270 Words   |  6 Pages Fiscal policy is whenever the government changes government spending or taxation as a means of influencing the market economy. This change takes place to stimulate or to restrain inflation. Fiscal policy is the manipulation of trends in the economy by the government. The content of this paper will discuss the effects of the changes in fiscal policy based on the evaluating fiscal policy alternatives simulation. Well Ruled The first part of the simulation for the year 2xx6 showed the decisionRead MoreEconomic Effects of a Budget Deficit754 Words   |  4 PagesThe immediate effect of a budget deficit is the negative perception of the general public, both local and international, on the ability of government to manage its fiscal affairs which seriously impairs its financial and credit rating including its ability to borrow more money to service the country’s foreign debt. Government is unable then to forthwith address the deficit and, as in the Philippines, starts blaming everybody else but itself for its budgetary woes. Still, during times of a budgetRead MoreThe Monetary Policy Is The Rule Of The Interest Rate And Money Supply Of A Country957 Words   |  4 Pagesstability – low inflation – and, subject to that, to support the Government’s economic objectives including those for growth and employment. Price stability is defined by the Government’s inflation target of 2%† (Bank of England). One of the most influential econometrics tools to define monetary policy is the Taylor rule. â€Å"This rule sets the interest rate above or below some ‘neutral’ level to a degree which depends on (i) the difference between current inflation and target inflation, and (ii) theRead MoreThe Effects Of Inflation On The Economy1129 Words   |  5 Pagesago, many economists did not believe that inflation –the escalation of prices that makes the money to be less valuable in the market- (Newnan, Eschenbach, Lavelle, 2014) could rise together with unemployment beca use they stood in the wide belief of a direct relation between economic growth and employment. That is to say that when the nation’s economy is in its healthy moments, the rate of unemployment will decrease, and in the other part the inflation will increase because people have more incomeRead MoreUnemployment Trends around the World1521 Words   |  6 PagesReference Business Economics. Rob Dransfield, 2014, Routledge: London Office for national statistics. Release: regional labour market statistic, 19 march 2014 Structural unemployment in Western Europe: reasons and remedies. Edited by martin Werding. 2006. Massachusetts institute of technology. Unemployment in Europe: Problems and Policies. VALERIE SYMES, 1995, Routledge: London Youth studies, An Introduction. By Andy Foulong, 2013, Routledge: London References Crisis in Australia which way out. Edited