It affects the distribution of real income, people on fixed incomes suffer as the purchasing power of their incomes decrease as price levels rise. Secondly, purchasing power od households on fixed income decline, as inflation tends to result in more unequal distribution of income as those on lower incomes find their wages do not rise as quickly as those on higher incomes. In times of high inflation household tend to purchase real assets that retain their real value since their prices rise faster than the inflation rate. Finally, another negative impact is the income tax earners suffer from fiscal drag pay rises to combat inflation put them into higher marginal tax brackets. This means as employees’ nominal wages increase with inflation their real wage (purchasing power of nominal wages) may remain constant.
Large decrease in purchasing power led to low demand and left the economy in depression 6. High unemployment. 7. Rapid increase in savings and hoarding of money due to panic and lack of confidence (John Maynard Keynes,General Theory of Employment, Interest, and Money=1936) 8. Higher interest was a consequence and the cause for a further depression as that led to a reduction of money supply in the Economy and as the Economy was on Gold standard the Federal bank couldn’t increase the supply of money without backing it with gold reserves 9.
It began with the world economic crisis in 1929 that affected the American nation the most. The crisis of overproduction of goods provoked the Great Depression. At that time, commodities/goods/items could not be bought because of the limitation of money supply - dollars were tied to the gold reserve. The end of the First World War played an important role in boosting the severe economic crisis. The fact was that the U.S. economy was heavily dependent on defense orders, and, after the end of the war, their number decreased, which led to a recession in the American military-industrial complex.
Interest rates continued to rise in order to reduce inflation; this caused manufacturing and housing to weaken. The savings and loans industry suffered during this time. They experienced frequent account withdrawals, as depositors moved their money to higher-earning accounts offered by commercial banks. The savings and loans industry was already struggling, the recession only made it worse. High mortgage rates destroyed the value of mortgage-backed loans, which is the primary asset of the savings and loans association.
While some may see it as a blessing, others may see it as a curse. How can these minerals and oil reserves be a curse when they generate huge foreign exchange? These resources become a curse when they do more harm than good. This curse may come in the form of slow growth, a decline in her tradable sector due to the appreciation of her currency among others. In most cases, the new opportunity found is embarked upon at the expense of existing opportunities (goods that are exported by a country).
Raising the minimum wage will ruin our economy. Look at the big picture, businesses and companies will struggle or close, poverty will increase, and the price of consumer goods will rise. There are a few things that let economists know how the economy is doing at the moment. They’re called economic indicators, and 2 of them are consumer confidence and unemployment rate. The more people that are unemployed, the less money being used to buy things which hurts the economy.
In his opinion, state should increase the aggregate demand by applying some fiscal and monetary policies. Decline in demand will naturally reduce the flow of resources to service and production of goods, which may damage employment and increase inflation. Natural changes in the prices, wages and interest rates cannot solve the problems in the short run, then the harms which is occurred in the short run can give a rise to bigger devastation in the long run. Keynes clarified his pessimism for the future with these sentence ‘’In the long run, we are all dead’’ According to Keynes, the reasons of recession and unemployment are occasionally the measures that people take to avoid them. If households want to save more than firms ' investment desires, output and employment levels in the economy will decrease.
Global recession is an extended period where there is an economic decline all over the world. It affects millions to billions of people and it has hit the poor countries the hardest. Why does global recession matter, though? Global recession matters because it slows down the growth of the world and the people living in it. It also effects banks and creates higher numbers of unemployment.
Inflation occurs when the buying power of a dollar decreases. “As inflation rises, every dollar you own buys a smaller percentage of a good or service. When prices rise, and alternatively when the value of money falls you have inflation” (Hayes). For this reason a minimum wage increase would never work. If employers are paying employees more then they will raise costs to offset the added expenses.
A more detrimental impact on the current minimum wage in our economy is the inflation rates and the fact that inflation tends to reduce the populations purchasing power of money. According to input by McConnell, Brue, and Flynn, inflation is caused by an excess of total spending that exceeds a firm’s production volume (McConnell Pg 206). In other words, by raising the minimum wage and creating human stimulus, businesses can reach full employment and maximum output. Minimum wage affects inflation because inflation imposes a domino effect in overall economic health and success. Increased costs reduce supply resulting in less total output and employment cuts.