Main Components Of Macroeconomics

2255 Words10 Pages
Main components of macroeconomics are Inflation and unemployment. Inflation is the falling the power of purchasing and raising the production cost of production. When the people who have no job and they are searching for job then Unemployment happens. Additionally, inflation and unemployment have a relationship with negative. All the component of macroeconomics are interconnecting and while examining one must concern each and every component with equal concern. In the case of UAE economy, inflation is increased when we compared with that past. If we analyse the economic condition of our country it is clear that inflation is higher in recent years comparing with past decade. Simultaneously, with inflation, the rate of unemployment is
…show more content…
The inflation rate is the percentage rate of change of a price index over time.

Effect of Inflation on Economy
 General Effect
A raise in the price’s general level indicates a decline in the currency’s power of purchasing. Each unit of finance purchase little goods and service if the level of price increases. Inflation deteriorates the actual money value (the functional currency) and other items with a fundamental nature of finance for example loans and bonds.
 Negative Effect
To whole economy, the rates of high inflation rates are observed as adverse. Effects of inflation are market inefficiencies, and create complicate for firms to plan long-term finance. Inflation can serve as a burden on productivity as organizations are compelled to change resources away from products and services for targets on profit and losses from inflation of currency. Concern about the power of purchasing in future of money depresses investment and saving and inflation can charge hidden tax raises. Higher inflation in one economy than another will lead to the exports of first economy to become more costly and impact the trade balance in trading internationally
 Positive
…show more content…
Quantity theories of inflation.
2. Quality theories of inflation
The quantity theory of inflation lies on the quantity equation of money that connects the supply of money, its velocity, and the exchanges nominal value.
The quality theory of inflation lies on the assumptions of a dealer receiving currency to be capable to trade that currency for buying goods at later time.
Adam Smith and David Hume planned a quality theory of inflation and quantity theory of inflation for product and money respectively. After examining these two theories, There are physical reasons to face which contains both theories rely upon lot of components. They are following. After analysing two theories of causes we have got here some physical cause to face which cover both theories depending on a number of factors. These are given below-
Excess of money
If government make excess of money to deal with crisis or issues, then inflation may happen. Therefore, prices stop increasing at a high speed to maintain with the currency excess. This process is called the demand-pull, in which prices are compelled higher due to high demand.
Increase in cost of

More about Main Components Of Macroeconomics

Open Document