Essay On Domestic Economy

Inflation is a rate at which general price level increases for goods and services produced in a nation. When inflation exists, the purchasing power of a nations currency declines over time. Inflation not only reduces the level of business investment, but also the efficiency with which productive factors are put to use. The benefits of lowering inflation are great, according to the author Dornbusch, but also dependents on the rate of

Along these lines, unemployment may decrease, as this has different favorable circumstances, for example, lower government using on profits and less social issues. However, this phenomenon includes a number of different expenses. Firstly, if economic growth is unsustainable and is higher than the long run pattern rate, inflations are liable to be seen. An increase in economic growth could prompt an equalization of issued installments. In case the expanded customer expenditure causes further development, there will be an increase in the import sector.

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.

In this case when the government borrows, it would lead to a higher demand for loanable funds, meaning it increases the interest rates. When interest rates increase, it lowers consumption and investment. Referring back to the graph, the government borrows money, which shifts DM0 (initial demand for money) to DM1. Simultaneously, the quantity demanded increases from Q0 to Q1 (as the government borrows), creating a temporary shortage of money. By borrowing so much money, the government “crowds out” private individuals and private commercial interests.

Having a wide gap between the upper and lower class doesn’t benefit the economy instead has a negative impact on it. For example, according to the Washington Post, “As income inequality grows, more and more resources are concentrated in the hands of the wealthiest. So, the idea goes, the wealthiest are better able to steer policies in directions that protect inequality at the expense of growth”. Because most of the wealth is in the hands of individuals who are at the top they have the power to do things their way. On the other hand, consumer spending plays a role in the economic growth of a country.

An increase in production would require more labor, thus lowering unemployment, and raises the demand for capital goods. When the economy starts to rise or is already afloat, stock market prices rise and firms issue equity and debt. When all these happen, prices begin to rise and inflation is then expected (Schwartz,

Economic growth means an increase in real GDP. This increase in real GDP means there is an increase in the value of national output / national expenditure. The benefits of economic growth include: Higher average incomes. This enables consumers to enjoy more goods and services and enjoy better standards of living. Lower unemployment With higher output and positive economic growth firms tend to employ more workers creating more employment UK unemployment rises during a recession – falls during periods of economic growth.

The first pro this article states is that employees who are getting paid at a higher rate will be more likely to stay. These employees will feel more appreciated for their hard work. This means there will be a lower turnover rate,which results in fewer expenses to hire and train new employees. The second pro is the raise in inflation. The federal minimum wage needs to be raised in order to account for inflation.

An expansion of the economy brings about a corresponding increase in quantity demanded for normal goods while a contraction in the economy causes a decline in the demand for the normal goods. On the contrary, the demand for inferior goods is not recurrent (Pech 24). The more the positive value for income elasticity of demand for a product is, the more sensitive consumer demand is to the fluctuations in national income. Banks can take advantage of the income elasticity of demand by analyzing the patterns in demand for money by its customers as their real income changes. Banks can provide customers with more credit cards should there be a period of economic expansion marked by a substantial increase in the income of customers (Hosek 5).