For the economy as a whole, demand pulled inflation refers to the price increases which results from an excess of demand over supply. It is a form of inflation and categorized by the four parts (households, businesses, governments and foreign buyers). When these parts want to purchase greater output than the economy can produce and we need more cash to buy the same amount of goods as before and the value of money falls, so they have to compete in order to purchase limited amounts of products and services. Generally, the demand-pulled inflation result from any factor that increases aggregate demand. Also, an increase in export and two factors controlled by the government are increases in the quantity of money and increases in government purchases
From Carlson and Osler (1998), individuals in the market speculation on exchange rate comes as a results of the type of shock. Speculations can lessen exchange rate impact on the shocks that is a downward pressure on the currency. Contrary, changes interest rate or risk do affect speculators directly on portfolio positions. They specified that for a huge number of speculators in the market, the adherence to the shocks will increase so exchange rate responses to these changes are high. 3.
.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
Moreover if the country wants to use Fiscal Policy in an inflation situation the government should regulate changes in tax and their spending. In regulating tax policies and spending the government need time so the monetary policy is considered the best option when there is an inflation. Deflation in an economy is considered a serious issue around the world because it is considered that it could turn a recession into a full blown depression. This happens due to prices of goods and services are already
One of the QE effect is called commitment effect because of that affects the premium portion of the yield of financial assets that are imperfect substitutes for the monetary base which means premiums would be reduced by decrease uncertainty over future short-term interest rates and hence would lower long-term interest rates. Bank would be announced that maintained the new policy regime which are lower long-term interest rates until CPI inflation become zero or more would lower expected short-term rates (Kimura & Small, 2004). Such effects would tend to be discourage saving and encourage borrowing to markets. It also view as a way increasing the stock market along with enhancing wealth for individual (Buttonwood, 2013). Moreover, lower interest rate would increase in current account balances by since lower interest rates will raise in aggregate demand and then raise in aggregate demand will cause more imports and thus result in trade deficit.
Inflation Inflation is referred to as a increase sustained in the general level of prices of goods and services in an economy over some specific period of time. As the price level rises, buying power of single unit of currency decreases. Thus, inflation rate is an indicator of reduction in the purchasing power per unit of currency. It is generally believed that high rates of inflation and hyperinflation are outcomes of excessive growth of the money supply. However, growth of money supply does not necessarily results in inflation.
It does so by managing the interest rate. Inflation is defined as a persistent increase in the average price level in the economy, usually measured through the calculation of a consumer price index (CPI). High interest rates will affect both investment and consumption, which will affect the aggregate
Economic growth and inflation is one of the big issues that study in macroeconomics while economic growth is calculating by measure the changes in the real Gross Domestic Product (GDP), however inflation refers to the increase in the overall price level. During economic expansion, economic is growth with increasing rate from year to year but this do not means that inflation is increasing too. Recession is a period where the demand for the products of most businesses declines, causing a fall in sales, production and employment for 2 consecutive quarters. Investment also one of the component in GDP that will affect the most during recession or expansion of economy. When economy is facing recession, where aggregate output declines will cause to low economic growth or negative economic growth.
The effects of inflation on economic growth are more or less certainly biased towards that view that inflation is detrimental to the growth of an economy. Datta and Kumar (2011) contend that the rate of economic growth primarily depends on the rate of capital formation and the rate of capital formation depends on the rate of savings and investment. The relationship between inflation and economic growth has been argued in various economic literatures and the arguments appeared to have shown differences in relation with the condition of world economy order. Policies which promote increase in aggregate demand could cause increase in production and inflation too as a consequence. In such situations and periods, inflation cannot be considered a serious problem as it can be regarded as having a positive impact on economic growth.
INTRODUCTION Population growth and Economic development go hand in hand. Their relationship can either be inverse or direct. In the sense that in some instances a masive increase in population leads to high economic development, on the other hand an increase in population can hinder economic development. Therefore from this analysis we cannot actually say population growth is a hindrance to economic development. This essay focuses on the negative and positive effects of population growth on economic development.