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.
INTRODUCTION Economic growth is defined as the increased capacity of an economy to be able to produce goods and services in comparison from one period of time to another. This is figured by the genuine Gross Domestic Product (GDP) and development, and is measured by utilizing genuine terms such as “Balanced Inflation”. These terms help to remove any distorted views on the perceived outcome of inflation on the cost of merchandises produced. Likewise, Economic growth is related to the high expectations in a person’s standard of living. If the standards are high, it wouldn’t be beneficial for the economy as the working class individuals will face a lot of trouble.
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.
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.
The law posits that as supply increases, while other things are kept constant, there is a decline in price and vice-versa. As demand increases, while other things are kept constant, the price tends to increase and when demand declines, the price declines. The economy achieves a state of equilibrium between quantity and price when there is a balance between demand and supply. The law of supply and demand has a big impact on the labor market and consequently, the economy. An increase in wages leads to a decline in supply of goods and services because labor is considered as a business cost.
The federal minimum wage needs to be raised in order to account for inflation. Inflation raises every year while minimum wage does not. A con this article looks at is the layoff rate. If the employer has a small budget and minimum wage is increased the business may not be able to pay all of their employees at the higher rate. As a result, the business will have to layoff their employees to compensate for the increased pay.
Inflation is the rate at which the general level of prices for goods and services is rising, and, then purchasing power falling over a period of time. When price level rises, dollar buys fewer goods and services. Therefore, inflation results in loss of value of money. Inflation is divided into two categories Cost-push and Demand pull inflation: Cost-push inflation means that prices have been hiked up by increases in costs of any of the four factors of production such as (labor, capital, land or entrepreneurship) when companies are already running at maximum production capability. With higher production costs and productivity at it maximum, companies cannot maintain profits by producing the same amounts of goods and services.
Web. Retrieved from http://economics.about.com/od/economics-basics/ss/The-Circular-Flow-Model.htm When the demands of the consumer for the goods/services increases, the market price will increase as consumers will compete to purchase them. This will persuade businesses that seek profit to increase the production of the goods/services. If the supply of these goods /services begins to exceed the demand, the market price falls and the production of these goods/services reduced. This will affect the profits of the manufacturers, but production will still continue even for smaller profits.
CHAPTER 2 LITERATURE REVIEW INFLATION (InvestorWords, 2015) stated that inflation is the increase in the general price level of goods and services in economy, normally caused by excess supply of money. Inflation usually measured by the Consumer Price Index (CPI). When the cost of producing goods and services goes up, the purchasing power of dollar will decrease. A customer will not be able to purchase the same goods and services as he/she previously could. Inflation rate of 1-2% per year are acceptable and even desirable in some ways (Investopedia, 2015).
The act of opening up economies is known as "free trade". It will generally benefit the larger wealthier countries whose big companies such as Apple, Microsoft and Nike are looking to expand and sell their goods worldwide. In the one sector where developing countries have the most to gain such as agricultural goods the wealthier countries will maintain the highest level of protection of their own markets. Free trade will bring down trade barriers such as tariffs, tariffs are a tax imposed on imported goods and services. They are used to restrict trade between countries as they increase the price of imported goods and services making them more expensive to consumers.
Even though the minimum wage workers will have more money on pay day, the rise of goods will cause inflation, and they will still not be able to afford anything. The Government should stay away from any kind of minimum wage policy. Raising the minimum wage might help the lower 20% of people of the nation