Rising Inflation Research Paper

They occur when the monetary and fiscal authorities of a nation regularly issue large quantities of money to pay for a large sum of government expenditures. Once consumers realize what is happening, they expect inflation. This causes them to buy more now to avoid paying a high price later. Noting the prevalence, it skyrockets the demand out or proportion, causing inflation to spiral into hyperinflation. Hyperinflations are very large taxation schemes.

To understand the ups and downs of the economy it is imperative to understand the connotation of inflation, its harms to the economy, and deflation in the Business Cycle. Inflation is defined as a prolonged increase in the general level of prices, and this has a direct impact on the purchasing power and the economy’s health. It is a result of an economic boom or peak (stimulated by various factors) when aggregate demand rises faster than supply can increase. In Econland, the monetary policy that increased money and credit supplying led to inflation.

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

It is determined by supply side factors. Cost-push inflation can be caused by higher price of commodities, imported inflation, higher wages, higher taxes and higher food prices (Economics Help, 2011). Demand-pull inflation happens when there is an increase in the price of goods and services when demand increases too much that it outpaces supply (US Economy, 2015). Sometimes people refer it as “too much money chasing too few goods”. When too much people are

To balance the budget every year, the government might have to take actions that would destabilize, or even destroy the

The Keynesian View of the AD/AS Model uses an SRAS curve (see figure1), which is horizontal at levels of output below potential and vertical at potential output. Look at the AD/AS figure, for the potential output (Yp), if AD decreases, output is changed but price is constant while increase in AD affects only prices and output is kept constant. Then economy begins at intersection of AD and SRAS at P0 and Yp, starting from the potential out level (Yp) which presents full employment in economy, thus AD is volatile and can fall easily in the recessionary gap, Therefore economy remains in equilibrium (Y1) but below full employment and Keynes supposed that for certain period, the economy will hold recession gap with targeted rate of

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. As a consequence, the increased costs are passed on to customers, causing a rise in the overall price level (inflation). Demand-pull inflation occurs when there is an increase in collective demand, categorized by the four sections of the macro economy: governments, households, businesses and foreign buyers.

That's because its goal is to slow economic growth. Why would you ever want to do that? One reason only, and that's to stamp out inflation. That's because the long-term impact of inflation can damage the standard of living as much as a recession.

It is the rate at which depository institutions borrow and lend from one another in the federal funds market. The FOMC’s open market operations lower the rate by increasing the reserves supplied to the economy, or alternatively, raise the rate by reducing the supply of balances. Due to a term structure of interest rates, the changes in the short-term interest rates are transmitted to the long-term interest rates since the financial markets expect the changes to persist for an extended period of time or assume that they convey information about the future monetary policy. Also, the inflation inertia ensures that the change in the federal funds rate effectively influences the real interest rate which is equivalent of the cost of borrowing. By altering the cost, federal funds rate indirectly affects the spending and investment by households and businesses, which on their turn, impact output and inflation in the economy.

Under the recessionary gap, an easy monetary policy should be exercised. In this situation, the Federal Reserve can increase the money supply by lowering the required reserve requirements, buying government securities in the open market operations, and by lowering the discount rate. To increase the money supply, the Federal Reserve has to lower interest rates through the money market. This would cause an encouragement to businesses to do more investment spending, which would shift the aggregate demand curve outwards. In other words, the Fed can increase the money supply by lowering interest rates and stimulating investment spending.

Governments often disagree on the adjustment of local, state, and national economic policies. Measures implemented by these governments in relation to the collection of revenue and public expenditure are referred to as fiscal policies.  Fiscal policy is the use of government revenue collection, which is derived from income tax and expenditure, to impact the fluctuating economy. Some may opt to promote expansionary fiscal policy, while certain show more interest in contractionary fiscal policy. While there are many advantages to both, certain key factors set them apart from each other.