...Abstract Inflation is something that is being mentioned during state of the nation address. Aside from being a number that mentioned and followed by applause from congressmen, what is its real value to us? Why does it happen? And who is responsible for inflation? The answer is within us. Our way of life dictates where inflation would go. Inflation is a Reality that Everyone Must Accept Time changes a lot of things in life. From our appearance, to our concept of rich and poor, and even to what is fact and fiction. As we live through our life we realize that most of the time, things are not the same as we used to remember. I would like to relate it to the PhP100 bill that we have today. When I was in college, this PhP100 goes a long way, it is enough for me to go to school, have lunch, a light snack and still have enough left for my piggy bank. Today the same PhP100 peso bill can only last me halfway. Why is that so? Let me introduce to you my not so close friend, inflation. Inflation is the nemesis of King Midas, because inflation does what King Midas is famous for but only in reverse. But is inflation really bad? Not necessarily so, because inflation happens because we make it happen. It happens because there is a need to balance things out. Too much money at hand will make spending soar, demand over commodities will increase and to prevent shortage of supplies, prices are increased. Is it for the better? In the short term, no, long term yes. Why in...
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...In economics, inflation is a sustained increase in the general price level of goods and srvices in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. The difference between inflation and a change in price of a particular good or service is that inflation reflects a general and overall increase in price across the whole economy In general, Inflation is caused by some combination of four factors. Those four factors are: Supply goes up or Supply of goods and services goes down or Demand for money goes down or Demand for goods and service goes up Inflation affects an economy in various ways, both positive and negative. Negative effects of inflation include an increase in the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings, and if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future. Inflation also has positive effects: * Fundamentally, inflation gives everyone an incentive to spend and invest, because if they don't, their money will be worth less in the future. This increase in spending and investment can benefit the economy. However it may also lead to sub-optimal use of resources. * Inflation reduces...
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...compare in the two countries. In addition we are not taking into consideration the amount of national income used for national defense. We also are not looking into the change in population which can be misleading, for example, if the GDP increases but population increases then everyone is getting a smaller percentage of the national income. If we do not look the growth of the population, we could think that the country is doing better by the national income increasing alone. Explain why hyperinflation has such a devastating impact on economies. Explain what it takes to stop hyperinflation. Hyperinflation is a situation where the price increases are so out of control that the concept of inflation is meaningless. It is devastating to the economy because the local currency loses value and the government is forced to devalue, when a currency...
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...its main idea that the power shifts to the customers. As a result, it interests me to explore whether the four forms of ‘little murders’ would be applicable for the practical issue of value co-creation. Because of the page limitation, I am going to focus on the knowledge renewal which is one of the enablers of value-creating activities according to Ballantyne and Varey (2006, p. 342) Knowledge renewal deals with the issues about how knowledge is created, applied and shared within firms,or with suppliers and customers (p. 340), which could be regarded as a self-sustaining mechanism. Although Brown and Duguid (2001, p.209) has mentioned stickiness and leakiness of knowledge from the aspects of internal divisions and external connections as potential problems when a company is coordinated around knowledge and applications . Personally, leakiness and stickiness are more about the demerits inherent in the nature of knowledge. By contrast, the barriers of applying relationship economics refers more about the economic or financial environment. The next section is to analyse how the ‘little murders’ affect knowledge. Zuboff and Maxmin (2002, p.194) introduced four deeds resulting in the destruction of relationship value. They are starvation, inflation, tyranny and mimicry. First, the inflation inflation gives rise to limited budget for operating knowledge renewal. The former one deals with prioritizing to lessen the cost and resources applied in the ‘front line’ of organization where...
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...the rate of inflation and the unemployment rate. By adjusting these tools, the Fed can control the amount of money in the supply. By controlling the amount of money, the Fed can affect the macro-economic indicators and steer the economy away from runaway inflation or a recession. The Federal Reserve The Federal Reserve uses three main tools in order to control the money supply. The first tool is open-market operations. These operations consist of the buying and selling of government bonds to commercial banks and the public. Open-market operations are the most important tool that the Fed can use to influence the money supply (Brue, 2004, p. 252). By buying bonds from the open market, the Federal Reserve increases the reserves of commercial banks that in turn will increase the overall money supply in the country. The opposite is true if the Fed sells bonds on the open market. By doing so, the Fed reduces the reserves of banks and, in turn, takes money out of the system. By being able to control how much money the commercial banks can lend, the Fed has a very powerful tool to adjust the economy. The second tool in the Federal Reserve’s arsenal is the adjustments of reserves ratio. The reserves ratio is the required amount in which a bank must have at all times. By raising or lowering the reserve ratio, the Federal reserves can expand or limit how much a bank will loan out money. If the fed decides to lower the ratio than banks will have more money to give out in loans. The...
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... What is Inflation: Five Types of Inflation Defined Inflation is a situation of sustained and inordinate increase in the prices of goods and services. When there is a rise in general price level for all goods and services it is known as inflation. An inflationary situation could be because of the rise in any single price or a group of prices of related goods and services. Types of Inflation There are no less than five different types of inflation: • Commodity inflation, better known as cost-push inflation • Wage inflation, otherwise known as demand-pull inflation • Monetary inflation, • Fiscal inflation, and • Foreign exchange inflation. Cost-push Inflation: As the name suggests, if there is increase in the cost of production of goods and services, there is likely to be a forceful increase in the prices of finished goods and services. For instance, a rise in the wages of laborers would raise the per-unit costs of production and this would lead to rise in prices for the related products. This type of inflation may or may not occur in conjunction with demand-pull inflation. Demand-pull Inflation This type of inflation occurs when total demand for goods and services in an economy exceeds the supply of the same. When the supply is less, the prices of these goods and services would rise, leading to a situation called demand-pull inflation. This type of inflation affects the market economy adversely during the wartime. Fiscal inflation Fiscal inflation is due to...
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...What we call the Fed is also known as the Federal Reserve System. This is known as the central banking system of the United States of America. The Federal Reserve was first established on December 23, 1913. It was enacted by the Federal Reserve Act. This is an act to provide for the establishment of Federal Reserve banks. Mostly it was to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States of America, and also for other purposes. Over the years different responsibilities and roles have occurred within the Federal Reserve. It did not just consist of the same functions but over time it changed and changed for the good of the country. The major factor that has contributed to most of the change within the Federal Reserve is the Great Depression. The Great Depression was known as a severe worldwide economic depression. There was a high unemployment rate, poverty, deflation, plunging from incomes, and many more consequences. These components sent the United States into a deep state of unstableness. The Federal Reserve System is made up of several different components. These components consist of appointed Board of Governors, the Federal Open Market Committee, and twelve regional Federal Reserve Banks, which are located in major cities throughout the nation, numerous privately owned U.S. member banks and various advisory councils. There are seven members that make up the Board of Governors...
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...increased government spending can create jobs and increase employment this is called expansionary policy. Decreased government spending can have the opposite affect this is contractionary policy. Macroeconomics Terms There are different terms associated with macroeconomics are important to know and understand. One known term is Gross Domestic Product (GDP). GDP is the value of all finished goods and services produced in a certain country during a certain time frame. GDP measures a country’s standard of living. Two words associated with GDP are real GDP and nominal GDP. Real GDP is the measure of the gross domestic product value adjusted for change in prices; this can be owing to inflation. Nominal GDP uses current prices on products and services (Colander, 2010). Unemployment rate is another important part of macroeconomics it indicates the percentage of people currently unemployed. This helps identify where the economy is currently at and what policies may need to go into effect to help the situation. The inflation rate indicates the overall level that prices for goods and services are increasing. As inflation increases the amount a dollar can purchase decreases. If a candy bar today is $1and a consumer has $2 then the...
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...three specific tasks -- maximizing employment, stabilizing prices, and moderating long-term interest rates. Pretty much it wants to create a stable economy. 2. Pros and Cons Pros: * Our paper money is a "fiat" currency that can be printed without limit and has no real value – its value is only maintained by the "full faith and credit" of the government. Gold has real value due to its beauty, usefulness, and scarcity. * With a fiat currency the government can essentially manufacture money virtually out of nowhere. Since leaving the gold standard in 1971 US currency in circulation increased from $48.6 billion to over $1 trillion dollars in 2012. Between 1971 and 2003 the entire supply of money in the United States has increased by 1,100%. Under a gold standard, new money could only be printed if a corresponding amount of gold were available to back the currency. * Since leaving the gold standard in 1971, inflation has reduced the value of the dollar, and inflated the price of oil about 32 fold. In 1973, Saudi Arabia agreed to trade oil only in dollars. This created a new international demand for the fiat dollars the Fed was now printing and as more dollars flooded the world, general inflation in oil prices followed. When on a partial gold standard in the 1950s and 1960s the...
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...development of the Indian economy by providing employment to a number of people in the forestry, fishing and logging industries. In 2009, the agricultural sector contributed 17.5% to the entire GDP, and more than 50% of the total labor force working in India is employed in the agricultural sector. Production volume has gone up in Indian agriculture at a consistent rate since the 1950s. Much of this improvement can be attributed to the five-year plans that were established for the development of Indian agriculture. Developments in irrigation processes, as well as various modern technologies used have contributed to the overall advancement of agricultural processes. Substantial amounts of research and development have been carried out in the agricultural space in India by organizations such as the Indian Agricultural Research Institute, the Indian Agricultural Research Statistics Institute and the Indian Council of Agricultural Research. In the industrial arena, India is 14th in terms of volume of...
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...Question 1. In 250 words, what role do the measurements of unemployment and inflation have on the management of an organization? Question 2. In 250 words, what analyses might a manager do to learn more about a specific company or industry? Please provide at least three examples. Question 3. In 250 words, what role does trade have, in relation to how an organization develops its strategic plans? 1. What role do the measurements of unemployment and inflation have on the management of an organization? Measurements of unemployment and inflation tells an organization what it should be doing to strategically price their products, and also acts as a means to control costs. The unemployment and inflation rates also indicate to an organization if they should consider increasing or decreasing hourly wage rates in an attempt to attract new employees. By evaluating the unemployment and inflation information in the current market, the company can also decide if whether or not the company should be acting to cut costs while remaining to compete effectively in an attempt to retain the skilled help currently employed. The inflation rates also can help a company determine if it appears, by analysis, that costs are going to continue to rise due to inflation, or if a reduction is in the near future, which will bring costs back down under control. There are two ways to measure inflation. The first is the Consumer Price Index, which is a measure of price changes in consumer’s goods such as...
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...237 E. The Quantity Theory of Money and the Importance of Money Supply The Money Equation Diagrammatic Representation of the Quantity Theory of Money 238 238 238 F. Methods of Controlling the Supply of Money Interest Rate Control Control over Banking Ratios Direct Controls over Banks Control of Government Borrowing 240 240 240 240 241 G. Monetary Policy and the Control of Inflation 241 © ABE and RRC 230 Monetary Policy Objectives The aim of this unit, in conjunction with Study Unit 12, is to explain and evaluate the effectiveness of monetary policy in a closed and open economy and discuss the possible impact of monetary policy on business decision-making. When you have completed this study unit and Study Unit 12 you will be able to: demonstrate an understanding of the relationship between the banking system and the creation of money identify the components of the high-powered money stock and explain why these have a magnified impact on the money supply explain the quantity theory of money and its role in explaining the rate of inflation discuss the components of monetary policy and explain how they work evaluate the factors that determine the effectiveness of monetary policy compare and contrast the relative effectiveness of fiscal and monetary policy. A. OPTIONS FOR HOLDING WEALTH There are...
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...Aggregate Demand and Supply Evaluate the extent to which an increase in aggregate demand may affect real output, inflation and unemployment. [25] Real output is an abbreviation for Real Gross Domestic Product or (Real GDP) is a macroeconomics measure of the value of economic output adjusted for price changes, this adjustment transforms the money-value measure, nominal GDP, into an index for quantity of total output. Inflation is the increase in general price level over a sustained period of time. Then unemployment is the number if people out of work, which is measure at a point in time, these people out of work are willing and able to hold a job but are unable to find one. Aggregate demand is the total of all demands or expenditures in the economy at any given price. It is created with four factors; Consumption [C], Investment [I], Government Spending [G] and Exports minus imports [X-M]. Creating the formula of: AD = C + I + G + (X-M). Consumption is the total spending by households on goods and services, Investment is the spending by firms on investment goods, Government Spending includes the current spending, for instance on wages and salaries and also includes spending by government, Imports are goods and services which are coming from a foreign, and Exports are good and services going out of a country. Aggregate supply is the total supply of goods and services that firms in a national economy plan on selling during a specific time period. It is split into Long...
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...economy is capable of producing when working at full capacity. Actual output differs from the trend level of output when there are output gaps. | Aggregate demand (AD) | The total planned spending on real output produced within the economy. | Aggregate supply (AS) | The level of real national output that producers are prepared to supply at different average price levels. | Availability of credit | Funds available for households and firms to borrow. | Balance of payments (BOP) | A record of all the currency flows into and out of a country in a particular time period. | Balance of trade | The difference between the money value of a country’s imports and its exports. Balance of trade is the largest component of a country’s balance of payments on current account. | Balance of trade in goods | The part of the current account measuring payments for exports and imports of goods. The difference between the total value of exports and the total value of imports of goods is sometimes called the ‘balance of visible trade.’ | Balance of trade in services | Is part of the current account and is the difference between the payments for the exports of services and the payments for the imports of services. | Balanced budget | Achieved when government spending equals government revenue. | Bank of England | The central bank in the UK economy which is in charge of monetary policy. | Bank rate | The rate of interest the Bank of England pays to commercial banks on their deposits held...
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...gain (or loss) from an increase (or decrease) in the consumption of that good or service. Economists sometimes speak of a law of diminishing marginal utility, meaning that the first unit of consumption of a good or service yields more utility [ than the second and subsequent units. Marginal cost: the change in total cost that arises when the quantity produced changes by one unit. That is, it is the cost of producing one more unit of a good. [1] What will happen according to the law of diminishing marginal utility upon acquiring an additional unit of a product? Consumer satisfaction declines. The law of diminishing marginal utility is at the heart of the explanation of numerous economic phenomena, including time preference and the value of goods... The law says, first, that the marginal utility of each (homogenous) unit decreases as the supply of units increases (and vice versa); second, that the marginal utility of a larger-sized unit is greater than the marginal utility of a smaller-sized unit (and vice versa). What is defined as an increase in total production expense resulting from one more unit of output? Marginal Cost What is a change to the total revenue resulting from the sale of one more unit of output in a perfectly competitive firm? Marginal Revenue Which economic principle describes the imbalance between what people want and what can be produced? Scarcity ***If a company decided to make more of A it must make less of B, what is this? Resource cost or opportunity...
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