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Inflation
A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.
1,474 Questions
What role does inflation play in GDP?
nflation can mean either an increase in the money supply or an increase in price levels. Generally, when we hear about inflation, we are hearing about a rise in prices compared to some benchmark. If the money supply has been increased, this will usually manifest itself in higher price levels - it is simply a matter of time.
The relationship between inflation and economic output (GDP) plays out like a very delicate dance. For stock market investors, annual growth in the GDP is vital. If overall economic output is declining or merely holding steady, most companies will not be able to increase their profits, which is the primary driver of stock performance. However, too much GDP growth is also dangerous, as it will most likely come with an increase in inflation, which erodes stock market gains by making our money (and future corporate profits) less valuable. Most economists today agree that 2.5-3.5% GDP growth per year is the most that our economy can safely maintain without causing negative side effects. But where do these numbers come from? In order to answer that question, we need to bring a new variable, unemployment rate, into play
it is true
Real GDP is Gross Domestic Product (A measure of the value of all things produced as marketable goods and services in a country in a given amount of time, normally a year) adjusted for indepent factors, such as inflation, that alter GDP. When economists compare GDP between years, they may look at real GDP to take a very accurate meausre of growth.
GDP per capita (not GDP percapital, as there is no such thing) is a measure of the average individual's input to the GDP. For example, Venezuela, a country of 29,000,000 in population, had a GDP of approxamately 382 billion USD. Its GDP per capita was therefore 13,200 USD, which means that the average resident of Venezuela contributed 13,200 USD to the GDP of Venezuela. The formula for GDP per capita is
(GDP per capita)=(GDP)/(Population)
Factors responsible for inflation in India?
Demand side factors:
1- Increase in nominal money supply: Increase in nominal money supply without corresponding increase in output increases the aggregate demand. The higher the money supply the higher will be the inflation.
2- Increase in disposable income: When the disposable income of the people increases, their demand for goods and services also increases.
3- Expansion of Credit: When there's expansion in credit beyond the safe limits, it creates increase in money supply, which causes the increased demand for goods and services in the economy. This phenomenon is also known as 'credit-induced inflation'.
4- Deficit Financing Policy: Deficit financing raises aggregate demand in relation to the aggregate supply. This phenomenon is known as 'deficit financing-induced inflation'.
5- Black money spending: People having black money spend money lavishly, which increases the demand un-necessarily, while supply remains unchanged and prices go up.
6- Repayment of Public Debts: When government repays the internal debts it increases the money supply which pushes the aggregate demand.
7- Expansion of the Private Sector: Private sector comes with huge capitals and creates employment opportunities, resulting in increased income which furthers the increase in demand for goods and services.
8- Increasing Public Expenditures: Non developmental expenditures of government lead to raise aggregate demand which results as increased demand for factors of production and then increased prices.
9-Credit purchase-Due to increase in credit cards people can puchase in credit which in result increase demand
10-Speculation-Speculation is also increase demand especially gold and shares
Supply side factors
1- Shortage of factors of production or inputs: Shortage of factors of production, i.e. raw material, labour capital etc causes the reduced production, which causes the increase in prices.
2- Industrial Disputes: When industrial disputes come to happen, i.e. trade unions resort strikes or employers decide lock outs etc the industrial production reduces. And as a short supply of goods in the market the prices go up.
3- Natural Calamities: Natural disasters, invasions, diseases etc effect the agricultural production, and shortage of supply which furthers the rise in prices.
4- Artificial Scarcities: Hoarders, black marketers and speculators etc create artificial shortage to earn more profits by keeping the prices high. (in Pakistan bird flu dilemma and sugar crises are the major examples in this regard)
5- Increase in exports (excess exports): When the country has tends to earn maximum foreign exchange and exports more and more without considering the domestic use of the commodities, it creates a shortage of commodities at home which increases the prices. (With reference to Pakistan, the failure of export bonus scheme during 1950's is the most common example of this type of cause of inflation)
6- Global factors: This factor includes the changing global environment. Most common example is the rise in oil prices. This factor of inflation may vary in nature, i.e. it can be political, strategic, economic or logistic in nature.
7- Neglecting the production of consumer goods: When the production of consumer goods is neglected with reference to the increased production of luxuries, it also creates inflation. For example in Pakistan, in last couple of years our services sector has grown with the highest rate of 8.8% (mainly telecom sector), while basic necessities have been ignored which created increase in the prices of consumer goods.
8- Application of law of diminishing returns: this law applies when the industries use old machines and methods and, which increase in cost by increasing the scale of production. This furthers the increase in prices and hence inflation bursts out.
9-Iefficient supply chain - Due to iefficient supply chain supply affects and cause demand on other side
Inflation in the us economy tends to be?
Inflation in the U.S. economy tends to be:
Question 8 options:a)a finite, one-time event resulting from a shock.
b)ongoing, as increases in aggregate demand outpace increases in aggregate supply.
c)a finite, one-time event as the Fed actively works to eliminate all inflation.
d)ongoing, as aggregate supply is continually shifting to the left.
Has anyone burst by belly inflation?
Yes, a man in the united states put a tire inflation hose up his bum and started the machine, he popped and died from it
How did Diocletian help slow inflation?
Years of devaluation had occurred during the reign of previous emperors as they expanded the Roman army to fight repeated and devastating invasions into the empire and to increase the pay and bonuses of the miltary. The problem of inflation had been caused by the debasement of the coins: the reduction in the precious metal content which devalued the coins. They had become worthless due to minimal precious metal content. Diocletian undertook a monetary reform which introduced five new coin: a gold coin, a silver coin, a copper and silver coin and a copper coin. The gold and silver coins had higher precious metal contents than the previous ones. However, the monetary reform did not stop inflation. Therefore, Diocletian issued the Edict of Maximum Prices to put a limit on the prices of goods. However, this proved unenforceable.
It was Constantine the Great who managed to control inflation. He concentrated on issuing large quantities of a new gold coin and temporality did not issue new silver coins until late during his reign. He confiscated the treasuries of pagan temples and shrines to amass gold to be smelted for coins. The gold coin proved to be stable and inflation started to slow.
What would the government do if the inflation rate is too high?
The government would aim to constrict money supply in the economy and impose deflationary measures.
MV = PY
Where M=Money supply, V=Velocity of spending, P=Price Level and Y=Quantity of Output.
Assuming that V and Y are constant values in the short run, by constricting M, P therefore falls, meaning disinflation would be experienced.
This could be achieved by a raising of interest rates (prompting increased saving) or increased tax (reducing average wealth). Although it could be argued that increasing interest rates attracts hot money into an economy, which would raise the exchange rate and increase MPI, which in itself is inflationary, these effects are negligible when compared to the impact that the change in rate has on spending within the domestic economy.
Which is the fastest growing sector of the UK economy at the moment and why?
In fact there are three main types of sectors in the UK:
1. The primary sector (raw materialism)
2. The secondary sector > aka. the manufacturing sector (turns raw materials from the primary sector into goods)
3. Tertiary sector > aka the service sector (producing services > for example education)
According to recent figures + the fact you can see in daily life in the UK it is said that the 3rd sector is the fastest growing sector of the UK economy. But still the question remains of why?
With rising incomes, consumers spend a larger and larger proportion of their incomes on services such as health, education and financial services.
So we can conclude that it is all about the income people get and that they spend a larger proportion each time on the big subgroups in the service sector.
Assuming the coin is circulated and has no mintmark, the 1922 Peace dollar is the most common of them all in any grade. A circulated coin is only $30.00 to $37.00 retail.
What geographic region consists of flat lands that gradually increase in elevation westward?
i cant believe know one know this i think its the Canadian shield or interior lowland
What is the effect of declining interest rate on employment GDP inflation and foreign sector?
Declining interest rate can have some effect,like increasing unemployement Rate,increase poverty.
Where can you get the inflatable zentai suit?
it's very simple. just type the word in google search block, i am sure there will be abundant links. then you need to check by yourself.
What happens to the income multiplier if the aggregate supply curve is vertical?
the multiplier is zero.
TIPS are indexed against the Labor Department's consumer price index (CPI). So when CPI - the measure of inflation - rises, the coupon payments of TIPS and the underlying principal automatically increase. When the TIPS bond reaches maturity, the inflation-adjusted principal is returned to investors. If deflation were to occur, the adjustments to the principal would be negative, though a TIPS bond held to maturity will never return less than its original principal. So to answer your question, the principle is adjusted for inflation - not the interest.
Inflation is a persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in the available currency and credit beyond the proportion of available goods & services.
What is deferred payment price?
A deferred payment price may be different from a price of cash and carry. To pay later is to defer and is usually more expensive.
misery index
What is the value of a pewter dollar?
A pewter coin is also known as a Continental dollar. Depending on the condition of the coin, the value of an original pewter dollar could be as little as 1,000 US dollars to 15,000 US dollars.
What is the value of a 1926 silver dollar?
As of today (11 July 2011), a 1926 Peace Silver Dollar has a melt value of about $26.75. Depending on the mint markings and condition, the collectable value of the coin may be more or less than that.
Assuming the coin is circulated and has no mintmark, the 1926 Peace dollar is very common. For an accurate assessment of value the coin needs to be seen and graded. Most coins show a lot of wear. In general retail values for low grade coins are $16.00-$17.00, better grade are $17.00-$18.00 and coins showing almost no wear run from $20.00-$29.00. Values are a market average and only for coins in collectible condition, coins that are bent, corroded, scratched, used as jewelery or have been cleaned have far less value if any to a collector or dealer
What is the explanation for the measures to control deflation?
To fight deflation, attempts must be made to raise the volume of aggregate effective demand. It will output, income and employment in the economy, Effective demand can be increased partly by consumption expenditure and partly by increasing investment expenditure. Various measures to increase consumption and investment expenditures in the economy.
1. Reduction in Taxation:
The government should reduce the number and burden of various taxes levied on commodities. This will increase the purchasing power of the people. As a result, the demand for goods and services will increase. Moreover, sufficient tax relief should be given to businessmen to encourage investment.
2. Redistribution of Income:
Marginal propensity to consume can be raised by a redistribution of income and wealth from the rich to the poor. Since the marginal propensity to consume of the poor is high and that of the rich is low, such a measure will help increasing the aggregate demand in the economy.
3. Repayment of Public Debt:
During deflation period, the government can repay the old public debts. This will increase the purchasing power of the people and push up effective demand.
4. Subsidies:
The government should give subsidies to induce the businessmen to increase investment.
5. Public Works Programme:
The government should also directly undertake public works programme and thus increase expenditure in public sector. Care should, however, be taken that the public works policy of the government does not adversely affect investment in the private sector; it should supplement, and not supplant, private investment. For this, it is important that only those projects should be selected for the government's public works policy, which is either too big or not so profitable to attract private investment.
6. Deficit Financing:
In order to have significant expansionary effects, the government's public works schemes should be financed by the method of deficit financing, i.e,, by printing new money. The government should adopt a budgetary deficit (excess of government expenditure over its revenue) and cover this deficit through deficit financing. Deficit financing makes available to the government sufficient resources for its developmental programmes without adversely affecting investment in the private sector.
7. Reduction in Interest Rate:
By adopting a cheap money policy, the monetary authority of a country reduced the interest rate, which stimulates investment and thereby expands economic activity in the economy.
8. Credit Expansion:
The central bank and the commercial banks should adopt a policy of credit expansion to promote business and industry in the country. Bank credit should be made easily available to the entrepreneurs for productive purposes.
9. Foreign Trade Policy:
To control deflation, the government should adopt such a foreign trade policy that, on the one hand, increases exports, and, on the other hand, reduces imports. This kind of policy will go a long way in solving the problem of overproduction, and help overcoming deflation.
10. Regulation of Production:
Production in the economy should be regulated in such a way that the problem of over-production does not arise. Attempts should be made to adjust production with the existing demand to avoid over-production.
In short, fiscal policy alone or monetary policy alone is not sufficient to check deflation in an economy. A proper co- ordination of fiscal, monetary and other measures is essential to effectively deal with the deflationary situation.
Do you want to know this question for the test? lol
Paragraph on price hike of essential commodities of India?
When the cost of something becomes far more expensive than its original price.Price rise is a great problem of the day. It is a common phenomenon not only in our country but also in the world. Today the prices of necessary things such as food items, cloths, education materials, medicine and many other necessary things are going up by leaps and bounds. Price rise is caused by several factors like hording, population explosion, low productivity, natural calamities, wars, backwardness of communication, evil motives of dishonest businessmen, smuggling, black marketing etc. If the price rise is caused by the short supply of commodities, it is temporary. But it is very difficult to control the price rise caused by inflation. However, the people of low income suffer greatly and pass there days in constant anxiety. They find it, difficult to make their both ends meet. Price rise has terrible effects on man's character. It leads people to the path of corruption and moral degradation. Lows should be enforced strictly to bring the prices of the essential commodities within the purchasing capacity of the common people
True or false Inflation refers to a dramatic drop in prices?
False!
Inflation means a dramatic increase in prices. The opposite of inflation is deflation. Deflation is a dramatic decrease in prices.
