...Money Growth and Inflation Can reproduction drive demand? As of October, the question shall be answered as the Communist Party of China have ended their one-child policy on child birth and allowed all married couples to have two kids. Such change in policy was directed to alleviate the demographic squeeze noted in the Chinese population, where they are experiencing an aging population along with a stagnant or shrinking work force. At the same time, with an increase in permitted child births, as any new parent knows- babies mean buying lots of stuff. With couples now being allowed to have a second child, such change could create an increase in spending within 9 months, if not sooner. The stock market, being forward-looking, would then proceed to bid up on shares of diaper makers, baby-bottle manufacturers, and skin-care products (Barrons, 7). Couples may also feel the need to move into bigger living quarters to ensure they have space for another child. On top of that, comes the decorating period with different colored themes to prepare for the babies arrival. Down the road, spending of families will continue to increase as they have tuitions, tutoring, sports teams, camps, computers, phones and all the other activities that come with having children. Having more children means forking out much more money into the economy. So with years to come, China’s economy is looking to boom, as a result of the communist’s countries’ new policy. The question is, could this become a good...
Words: 677 - Pages: 3
...expansion of the early universe, see Inflation (cosmology). For other uses, see Inflation (disambiguation). Economics 2011 World GDP (PPP) per capita by country 2012 World GDP (PPP) per capita by country Index Outline Category History Types Classification History of economics Economic history (academic study) Schools of economics Microeconomics Macroeconomics Heterodox economics Methodology JEL classification codes Theory Techniques Econometrics Economic growth Economic system Experimental Mathematical Game theory National accounting By application Agricultural Behavioral Business Computational Cultural Demographic Development Ecological Education Environmental Evolutionary Expeditionary Geography Health Industrial organization Information International Labour Law Managerial Monetary / Financial Natural resource Personnel Public / Welfare economics Regional Rural Urban Welfare Lists Economists Publications (journals) Portal icon Business and economics portal v t e In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.[1] When the general 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.[2][3] A chief measure of price inflation is the inflation rate, the annualized percentage change...
Words: 8835 - Pages: 36
...1. Introduction Money demand is an important element in macroeconomic analysis especially in constructing monetary policy. The demand of money is the quantities of money that people willing and able to hold at alternative interest rates, ceteris paribus. There are several models of money demand used to explain why individuals and businesses hold money balances like cash and checkable deposits. Those models of money demand shows how do the behavior of individuals and businesses causes the fluctuations of money balances in the economy. According to the liquidity preference theory by economist, John Maynard Keynes, he determined that there are three primary motives that people holding money.The first motive is transaction motive which explained that people holding money and used it to buying things. In this motive, money demand depends on size of income, spending habit and slightly affected by interest rate. The second motive for holding money is for precautionary motive which means that people hold money in anticipation of wishing to make huge transactions in the future. People will keep money on hand just in case to overcome unforeseen emergency. The demand of money in order for precautionary motive is depend on size of income, nature of person and farsightedness. The last is speculative motive which people will like to keep money in the liquid form and invested in securities when the interest rate are rises thus it can be said that hold wealth as money to store value. This motive...
Words: 3160 - Pages: 13
...their lives through all difficulties in the economic conditions. People also save some of their income for their future needs. Their save money would be affected by inflation and their purchasing power would be diminished. Inflation is mostly a matter of monetary policy which occurs when a government prints money without real asset backup more than the amount that is need for a stable economy. This study examined the effects of implementation of Islamic currency on the prevention of inflation and price instabilities. Economic students of IIUM were randomly given questionnaires about the agreeability of Islamic currency in today’s developed economy and its usefulness to prevent inflation. The survey showed that Islamic currency model (dinar and dirham) would be able to control inflation and instabilities of prices by having 100 percent of gold and silver reserves for every single amount of money circulating in the economy. Moreover, it is emphasized that Islamic governments should implement this model to overcome the problems people are facing by inflation which diminishes their purchasing power of saved money and their uncertainty in future investments. Keyword: Fiat money, Islamic currency, perception, inflation, economic growth. Islamic currency: The perception of IIUM economic students on Islamic currency usage to prevent the inflation in a country 1. Introduction Many things caused the current economic instabilities and crisis which have direct effect on the well-being...
Words: 4604 - Pages: 19
...laurate Milton Friedman, “Inflation is an old, old disease. We have had thousands of years of experience of it. There is nothing simpler than stopping an inflation – from the technical point of view.” If inflation were a disease, then what is the cause of the disease? How do you cure the disease? What are the effects of this disease? Please watch the following videos by Milton Friedman to answer the above questions. Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly. As a result of inflation, the purchasing power of a unit of currency falls. Milton Friedman termed it as a dangerous and fatal disease which if allowed to spread unchecked can ultimately destroy the society. It occurs as a result of too much money in the market. The increase in the quantity of money more than the output brings about inflation. The causes of Inflation have been attributed to many things over the years such as greedy businessmen, Trade unions, Spendthrift consumers, etc. However that’s not the case. The main responsibility of inflation falls on the Government. According to Milton Friedman, the primary causes of inflation are as listed below: * Control of the Printing Press: The printing press is under the control of the Government. Hence, the amount of money that is in the market is...
Words: 965 - Pages: 4
...University of Dhaka A Report on “Inflation: Perspective Bangladesh” Date of Submission: May 26, 2011 A Report on “Inflation: Perspective Bangladesh” Course no. & name: F-203-Macroeconomics Submitted to: Mohammad Salahuddin Chowdhury Lecturer Department of Finance University of Dhaka Submitted by: Group: Morning Stars Sec-B BBA 16th batch Dept. of Finance University of Dhaka Date of Submission: May 26, 2011 Group members are Name | Roll | K. M. Najmus Sakib | 16-020 | Mobasheera Tasnim | 16-052 | Md. Kamrul Islam | 16-090 | Rajib Kumar Deb | 16-106 | Shaykha Sultana | 16-160 | Md. Shamsul Alam | 16-172 | Letter of Transmittal May 26, 2011 Mohammad Salahuddin Chowdhury Lecturer Department of Finance University of Dhaka Subject: Submission of a report on “Inflation: Perspective Bangladesh” Dear Sir, We are presenting a report on “Inflation: Perspective Bangladesh”. In this report we have included various methodologies to explain the current scenario of inflation in Bangladesh. In making the study, we had to take help from the various sources of internet, different institutes and class lectures of our course teacher. We are grateful to them for extending generous help. We acknowledge the contribution of our course teacher heartily. We have tried to use our academic knowledge in real life. We are pleased to be granted this vital opportunity and grateful for your versatile assistance. We hope that our work...
Words: 8353 - Pages: 34
...Topic: China’s five year inflation rate from 2007 to 2012 Content 1. Introduction ------------------------------------------------------------------------P5 2. Inflation rate of China over the last 5 years ----------------------------P5, 6, 7 -Definition of the concept -----------------------------------------------------P5, 6 -Performance over the last 5 years-----------------------------------------P6, 7 3. Impacts of the future economic performance ----------------------------P7, 8 4. Other relevant issues and discussion--------------------------------------P8, 9 5. Conclusion --------------------------------------------------------------------------P10 6. References--------------------------------------------------------------------P10, 11, 12 1. Introduction In today’s world, inflation this word keep appearing in our lives. From newspaper, television, internet etc. Now a day more and more people taking about the inflation. Not only because of the inflation keeping appear in our live, but also the people know more about the inflation than before. Few years ago, most of people do not know what inflation is and what it can do with our live. But today, this has been changed with the development of social and the growth of the economic. In the past people can only see inflation this word in some report. And most of the people do not understand about the inflation. Nowadays people already know what the inflation represents. By the news...
Words: 1925 - Pages: 8
...Inflation – Impacts On The Economic Growth Of Nigeria By DoubleGist | Published: June 5, 2013 Inflation – Impacts On The Economic Growth Of Nigeria Inflation – Impacts On The Economic Growth Of Nigeria A macroeconomics problem facing Nigeria, and the most disturbing, is the problem of inflation. As a result of its growing rate, Nigerian government is concerned about its impacts on her economic growth. To place an order for the Complete Project Material, pay N5,000 to GTBank (Guaranty Trust Bank) Account Name – Chudi-Oji Chukwuka Account No – 0044157183 Then text the name of the Project topic, email address and your names to 08060565721. Many authors have written on Impacts of inflation on Nigerian economy, but the authors have different views because inflation analysis, nevertheless, one thing common is that all the authors agree that inflation has Impact on Nigerian economic growth. Samuelson (1973), defines inflation as “a general rising prices for breeds, cars, haircut, rising wages, rent etc. Onwukwe (2003), on his side defines inflation as “a significant and sustained rise in the general price level or a declining value of the monetary units. The problem created by the rising prices of goods and services has become two difficult for government to solve. During inflationary period, fixed amounts of money buy less quantity of goods and services. The real value of money is drastically reduced i.e the purchasing power of consumers are reduced. The Impact of rapid...
Words: 4162 - Pages: 17
...exchange rate, gross domestic product and inflation using data from 1960-2010 to analyze the results. We have taken the data in percentage form. A great number of empirical studies on the relationships of monetary policy and inflation are available and most of these have analyzed the effectiveness of monetary policy in controlling inflation in Pakistan. In this paper we have presented the effectiveness of monetary policy it’s framework and data estimation through which we reached to the conclusion that monetary shocks do affect real variables like GDP, inflation and exchange rate. Pakistan has been estimated by a number of researchers and it has been recognized that monetary phenomenon are responsible for the high levels of inflation. Keywords: Monetary Policy, Inflation, Exchange rate, Economic Growth, Gross domestic product and Pakistan. Introduction This paper attempts to examine the long-run effects of Monetary Policy on several economic variables such as inflation, economic growth that is gross domestic product and exchange rate in Pakistan. For this purpose, analysis have been employed for the period 1960-2010. As monetary policy actions affect policy variables with a significant gap and with high degree of unpredictability and insecurity, it is key to predict the probable impact and degree of monetary policy actions on the real variables. Usually, policy makers and central banks decide that price stability or low inflation would prompt higher economic growth. Commonly...
Words: 2772 - Pages: 12
...INTRODUCTION The term "inflation" originally referred to an increase in the amount of money in circulation. Most economists today use the term "inflation" to refer to a rise in the price level. Rising in price and increase in money supply is two different meanings. The increases of money supply can also being called as monetary inflation while rising in price as price inflation. Economists generally agree that in the long run, inflation is caused by increases in the money supply. However, in the short and medium term, inflation is largely dependent on supply and demand pressures in the economy. In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects erosion in the purchasing power of money or in other word a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time. 2.0 THE EXISTENCE OF INFLATION AND HOW IT MEASURED In order to know whether the existence of inflation, we must analyze the demand supply curve and see how it can relate to an increase in price. That is if we do believe that any increase in price somehow relates to inflation. An increase in price...
Words: 2412 - Pages: 10
...Problem Statement Rising rate of inflation in Pakistan in last decade, factors that impact this rise in inflation. The factors are monetary i.e. money supply, exchange rate and real GDP and other factors are banking and non-banking borrowings. Research attempts to give solutions for problem that how, why, and when these factors affect the rate of inflation. Research is aimed to identify reasons due to which inflation is rising in Pakistan and give solution for this problem. Review of Literature Inflation & Importance The general movement of a country's overall price level is of primary concern to all and more so if the movement is upward. The problem of inflation has virtually become a major concern for all economies - over the last few decades, Inflation has been accelerating at an alarming rate in most of developing countries. (Mohammed Sabihuddin Butt and Haroon Jamal: A MONETARIST APPROACH TO INFLATION FOR PAKISTAN: Pakistan Economic and Social Review Vol.X XVI No.2 (Winter1988) pp 69-87) Inflation adversely affects the overall growth, the financial sector development and the vulnerable poor segment of the population. There is clear consensus that even moderate levels of inflation damage real growth. Inflation decreases the real income and also induces uncertainty. Considering such adverse impacts of inflation on the economy, there is a consensus among the worlds' leading central banks that the price stability is the prime objective of monetary policy and...
Words: 3002 - Pages: 13
...the Quantity Theory of Money Eric Mahaney 4/7/13 EC-301-1 The Fisher effect and the Fisher equation were made famous by economist Irving Fisher. He created his equation by rearranging the equation for real interest rate, which is (r = i - π). Real interest rate equals the nominal interest rate plus inflation. This is a very basic equation. Fisher manipulated it to solve for i, in order to understand the effect that inflation has on nominal interest rate. The famous equation is i = r + π, nominal interest rate equals real interest rate plus inflation. This is basically saying that the nominal interest rate can be changed by a change in either the real interest rate or inflation. The Fisher effect is the one to one relationship between the inflation rate and the nominal interest rate. According to this model, as inflation increases, the nominal interest rate should also increase by the same proportion. The main concept behind the Fisher effect is that higher inflation causes higher nominal interest rate. (Mankiw, 91-92) By using the Fisher effect along with the quantity theory of money, the effect that money growth has on nominal interest rate can also be analyzed. The quantity theory of money is M*V=P*Y or the quantity of money multiplied by the velocity of money equals price multiplied by output. The velocity of money is assumed to remain constant in order to simplify the model. Therefore, PY is determined solely by the quantity of money. PY represents nominal...
Words: 1695 - Pages: 7
...INFLATION Inflation is a problem burning since the concept of economy came. This is a problem economist’s fight to solve and bring down but still now no permanent solution to this burden on the economy. Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every rupee you own buys a smaller percentage of a good or service. Thus people loose purchasing power in short. However, there is a difference between “money inflation'' and “price inflation”. When the prices rise due to an expansion of the money supply, it is 'money inflation' but in the later phase more and more money supply has to be expanded an as such this is known as 'price inflation'. THEORIES OF INFLATION Two main theories of inflation mainly: 1. Demand Pull Inflation: This theory can be summarized as "too much money chasing too few goods". In other words, if demand is growing faster than supply, prices will increase. This usually occurs in growing economies. Demand pull inflation occurs when the demand for goods and services exceeds their available supply at the existing prices. 2. Cost Push Inflation: When companies' costs go up, they need to increase prices to maintain their profit margins. Increased costs can include things such as wages, taxes, or increased costs of imports. COST OF INFLATION Almost everyone thinks inflation is evil, but it isn't necessarily so. Inflation...
Words: 1049 - Pages: 5
...Causes of Inflation: Historically, a great deal of economic literature was concerned with the question of what causes inflation and what effect it has. There were different schools of thought as to the causes of inflation. Most can be divided into two broad areas: quality theories of inflation and quantity theories of inflation. The causes of inflation are as follows: 1. Demand-Pull Effect: Demand-pull inflation is caused by increases in aggregate demand due to increased private and government spending, etc. Demand inflation encourages economic growth since the excess demand and favourable market conditions will stimulate investment and expansion. 2. Cost-push effect: Cost-push inflation, also called "supply shock inflation," is caused by a drop in aggregate supply. This may be due to natural disasters, or increased prices of inputs. For example, a sudden decrease in the supply of oil, leading to increased oil prices, can cause cost-push inflation. Producers for whom oil is a part of their costs could then pass this on to consumers in the form of increased prices. Another example stems from unexpectedly high Insured losses, either legitimate or fraudulent. Cost-push inflation can be caused by many factors. The factors are as follows: * Rising Wages * Import Prices * Raw Materials Prices * Profit Push Inflation * Declining Productivity * Higher Taxes 3. The Money Supply: Inflation is primarily caused by an increase in the money supply that outpaces economic...
Words: 1643 - Pages: 7
...Indian and Chinese policies to tackle inflation Abstract: India and china the two Asian giant, have shown economic growth in last few decades. The expansion of the economy brought high inflation in both countries. Inflation impacts all types of the consumers while rich or poor, it will become a real problem if the countries didn’t adopt policies to decrease the inflation rate. India and china have a very fast economic growth with fast population. The government and the central bank have to work beside to curb the inflation using two main policies are monetary policy and fiscal policy. In the monetary policy the central bank has to manage the many supply in the market and also control and decline the inflation, in terms of fiscal policy the government try to see the tax level to impact in the inflation rate. Monetary policy has more effect than fiscal policy, but also there are challenges implementations of the policies. Argument 1(monetary policy) India has faced a hyperinflation in years 2009 to 2011 to unprecedented level. The inflation in India affects the saving of the Indian household which decreased the value of saving in that nation. The monetary authorities are trying to impact the money supply directly without creating deformation in the economy by changes CRR (cash reserve ratio), repo and reverse repo rate. The main objective is to maintain price stability. The RBI (reserve bank of India) trying to control the money supply by using which called contractionary...
Words: 2383 - Pages: 10
