Figure 2.0 C. Effects of Inflation Firstly, due to inflation the value of money falls. This means that the $1 that use to buy the goods before, if used in inflationary period that same $1 will buy less goods than before. So in other words purchasing power of the money has fallen. Secondly, income and wealth are not distributed effectively. Inflation has pervasive effect on the people who largely depend on fixed income; like salary earners and pensioners.
Therefore, their productive capacity will increase as they are able to produce more goods and services. The second importance is more cash in circular flow. As firms buy more capital goods, they inject more cash into the circular flow. Other than that, positive net investment spurs economic growth. As firms invest more in capital goods, gross private domestic investment increases, GDP
Therefore, in the long run, increases in money supply lead to inflationary phenomena. The doctrine of money supply rule promoted by Friedman as a counter measure to inflation and short run employment fluctuations. The \textbf{money supply rule} is a monetary policy rule proposal according to which central banks should increase money supply at the same rate as income grows, in order to eliminate inflation. The inspiration of the rule comes from the Friedman’s version of the quantity theory. This version of quantity theory is stated in percentage changes terms, i.e.
Internationalization Internationalization is the exchange of products and services throughout different countries. It is important to trade internationally for a nation’s economic importance and welfare. The need for exporting goods and services means that there will then be a revenue available for the purchase of imported goods which are not available in that country. The strength of a countries economy can be measured by the gross domestic product. (GDP) the GDP of an economy will rise when sales increase.
The innovation of technology is expanding from changing and positively affect the economy. In eras of technological improving, it causes industries to increase their productivity, so the country's economy is growing and improving its financial health (as cited in Moritz,
Both demand and supply factors are important in sustaining the growth of the economy. Mohr et al. ( 2015:414) state that supply factor caused an expansion in the production capacity of the economy. Therefore, it requires an increase in both the quality and quantity of labor, capital, natural resources, and entrepreneurship. These four factors of production play an important role in the economy of each country but natural resources and capital explain the growth of the economy in many countries.
Economic analysis is important in order to understand condition of an economy. The level of economic activity has an impact on investment in many ways. If the economy grows rapidly, the industry can also be expected to show rapid growth and vice versa. The degree of economic growth is directly proportional to the stock price i.e. when the economic activity is high, the stock prices are also high indicating the prosperous outlook for sales and profit of the firm.
Economic problems result in less production of goods and services, less distribution of income, loss of tax revenues, fall in GDP rate etc. (www.economywatch.com). Social problems cause 's social ills and shows effect on individuals financially and psychologically. Individuals cannot meet their financial obligations on time and getting high stress which leads to problems like ill-health, premature death, suicides etc. (Clark, 2003) The economists describe unemployment as a condition of jobless within an economy.
The Relationship between Economic Factors and Economic Growth: An Empirical Investigation. Introduction: Economic growth is defined as the increase in the capacity of an economy to produce goods and services compared from one period of time to another. Economic growth is the continuous improvement in the capacity to satisfy the demand for goods and services, resulting for increased production scale and improved productivity. (Sources of Economic Growth, 2011). The economic growth of a country is associated in rising incomes, related increase in saving, consumption and investment.
As explained before, at the present time, it will lower both private consumption and investment which result in lower real GDP and slower economic growth. Not only that, it will also decrease government income from tax as well as increasing government spending on unemployment benefits. In the future, if youth unemployment is not being addressed properly, it would lower the production capacity utilization of its country and the production point will move further from the PPF (shift inward). Moreover, it will also degrade the quality of labour force as well as increasing the quantity which will result in a surplus of labour. Prolonged youth unemployment will move the macro-equilibrium to the left as the aggregate demand curve shifts to the left.