Inflation is one of the major problems in macroeconomics. Generally in theory, inflation is an increase in the overall price level and it is calculated based on the Consumer Price Index (CPI). Inflation and economic growth are incompatible. Government around the world will take action to minimize the negative impact of inflation to a certain extent when inflation is expected to be happened. Low inflation rate and upward economic growth is impossible in reality (“Inflation and Economic Growth”, 2010).
.3.3 Inflation Rate The inflation rate used as an indicator in measuring the stability of economic condition for a particular country (Rashid et al., 2011). In financial theory, inflation rate reflected by consumer price index (CPI) represents all the price of goods and services will go up and it need to take more money to buy the same items. Moreover, high inflation is likely cause a great impact on economic activities of a particular country because it reduces the purchasing power of domestic consumers and it would lead to currency value decline. The previous researchers believe that the inflation rate will influence the stock market return. There are many empirical studies establish that the inflation rate has an impact on stock market
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
When a country´s currency goes either up or down (increase or decrease) because of financial pressure (which can be caused by unpredictability from trading), and when this happens, is time for the central bank to step in to stabilize the situation and prevent it from becoming a crisis. This intervention can cause a currency value to increase or decrease; this is something that affects imports and exports. When the exchange rates are affected because of intervention and causes a currency to become stronger, this promotes imports over exports and vice versa. For example, if the central bank believes that current interest rates should be raised slowly during the next several months in order to slow the growth of the economy and prevent a resurgence of inflation, then a FOREX intervention to lower the value of the domestic currency would result in increases in the money supply and a decrease in interest rates, precisely the opposite of what the central bank wants to
Demand pull inflation is when total supply of goods and services is insufficient to meet total demand for goods and services by the economy. Cost push inflation is the price increase as a direct result of the increase in the production cost mainly labor cost. The increase in wages and salaries are handed on to consumers in the form of higher prices. Imported inflation occurs when inflationary pressures which develop overseas are transmitted to the domestic economy through the mechanism of international
High interest rates invite inflation by encouraging consumers to consume more and save less. This will increase the demand for goods produced and hence firms and manufacturers will produce in excess to capitalize on the high demand. High production will lead to goods produced in excess not getting bought and hence destabilizing the market since the business people will want to cut losses and will lower prices drastically hence inflation and making it a necessary evil to engage the production units of a country. Inflation has many different effects that make it to be dubbed a necessary evil. One of these effects is the continued surge in prices while salaries and wages of middle income earners continue to be the same.
Monetary base is the total sum of the amount of money being circulated within a country. It can belong to both citizens, as well as commercial and governmental banks. The doubling of the monetary base is supposed to cause inflation, as by definition inflation is an increase in the money supply. Long-term government bonds will keep investment rates low as well as enable the use of monetary policy, or the ability to control the ebb and flow in the money supply. Thus, the first arrow is almost completely aimed towards causing
The purpose of this article is to study the crashes of housing market, emerging market, poor banking sector and of course recession. Findings of the study shows that growth and expending domestic demand may increase import demand and it will cause growing economics. A cross sectional data was used. Hassan B. Ghassan et al (2013) used time-series data from 1986 to 2010. According to this study the absence of cointegration between international liquitidy net export and GDP are the cause of financial crises and its impact on Saudi Arabia’s economy specially on oil production.
Inflation inflation is the long term rise in the prices of goods and services caused by the devaluation of currency or a general increase in prices and fall in the purchasing value of money. Through light over the effect of inflation 1)Business competitiveness: On the off chance that one nation has a substantially higher rate of swelling than others for an extensive time frame, this will make its fares less cost focused in world markets. In the long run this may appear through in diminished fare orders, bring down benefits and less occupations, and furthermore in a compounding of a nation's exchange adjust. 1.1)Inflationary development has a tendency to be unsustainable prompting a harming period of boom and bust monetary cycles. For instance,
inflation is defined as a long term rise in the general level of price for goods or service which caused by the devaluation of currency. The Inflationary problems arise when we experience unexpected inflation which is not totally associated by the rise of households incomes, but if the incomes do not increase as the price of goods increased the people purchasing power will effectively reduce and that may lead to stagnant economy. Moreover, excessive inflation can also effect badly on retirement savings as it reduces the purchasing power of the money that savers and investors have. The two main types of inflation are:- 1- Demand Pull Inflation- this occurs when the economy grows quickly and the aggregate demand (AD) increases at a faster