economics inflation essay
This is a case of currency- induced inflation. However, aggregate demand may rise following an increase in money supply generated by the printing of additional money (classical argument) which drives prices upward. Stuck with your inflation paper? The amount of resources transferred by the inflation tax is a function of the rate of inflation and the elasticity of demand for real cash balances. Under walking inflation, prices rise approximately by 5 per cent annually. In fact, these economies are caught in the vicious circle of poverty; low income leading to low investment, low investment leading to capital deficiency, capital deficiency leading to low income. (b) If trade unions succeed in raising wages of the workers more than their productivity, this will push up the cost of production, and lead the producers to raise the prices of their products. Firms often exercise power by pushing up prices independently of consumer demand to expand their profit margins. Before uploading and sharing your knowledge on this site, please read the following pages: 1. The combined demand-cum-cost inflation is illustrated in Figure 6. According to the quantity theory of money, increases in the supply of money, given its velocity, lead to an increase in the total money expenditure. (c) Wage rise may be induced by increases in the productivity. But it is difficult to make the price rise of a creeping variety. In short, inflation occurs when the economy is growing due to the increased spending. They argue that there can be an autonomous increase in aggregate de­mand or spending, such as a rise in consumption demand or investment or government spending or a tax cut or a net increase in exports (i.e., C + I + G + X – M) with no increase in money supply. These economies, during their development phase, on the one hand, require the import of capital goods, essential raw materials and semi­-manufactured goods and, in many cases, food grains and other consumer goods, and on the other hand, have low export earnings due to small exportable surplus, trade restrictions the world over, and relatively poor competitive power of their exports. The amount of resources transferred by the inflation tax is a function of the rate of inflation and the elasticity of demand for real cash balances. The Great Recession The great recession of 2008-09 is considered to be the worst recession that hit the American economy since World War II, furthermore the fact that the American economy was entering into recession [...]. In the actual world, it is difficult to say precisely whether the rise in prices is due to demand-pull factors or cost-push factors.

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