Cause Of Inflation Essay

The additional income allows people to spend more causing more demand. Businesses may respond to this rising demand by raising prices because they know they cannot produce enough. In order to stop inflation, the central bank uses a restrictive monetary policy. This is where interest rates are raised and the bank sells its holdings of treasures and other bonds. The reduction in the money supply restricts liquidity and slows down economic growth.

As the value of their assets rise, people naturally feel richer. Consumer spending has held up not because incomes have risen, but because consumers have taken on more debt, mostly by borrowing against rapidly rising housing prices. The marginal propensity to consume is affected by consumer confidence and interest rates as they affect the rate of return on savings. With fewer dollars available as savings to banks and other financial institutions, interest rates are higher for both savers and borrowers than they would otherwise be. That makes it more costly to finance investment in factories, equipment, and other goods, which slows growth in the GDP.

Whether they believe that the tax rate is too high or too low, there is always something to gripe about. The best policy to aid an economy’s recovery or give it an additional boost in boom times is always a tax cut. This can be engineered either as a straight up tax cut or as a rebate to taxpayers. Both methods leave more money in consumers’ and companies’ coffers, allowing them to spend more freely. This additional money in the economy causes a greater demand for goods, which in turn drives companies to produce more products.

When inflation (means the increase in prices of goods and services) increase the value of currency decreases. It has a worst effect on consumers, when high prices of day-to-day goods would be difficult for consumers to buy daily life commodities. This makes the consumers to think for high incomes so government always

Inflation can lead to unemployment, as people demand less due to higher prices and therefore demand for labor maybe decreased. Inflation also creates uncertainty for entrepreneurs, cost curves increase and revenue can decrease thus squeezing profits. Also when inflation is in the mind of the entrepreneur it can escalate easily as they will take inflationary actions like automatically increase prices and therefore it is imperative government spending/borrowing is controlled. Although government borrowing does increase the money supply, the monetarist view of a direct link between money supply and inflation is wrong, as proved when Britain experienced recession under Margaret Thatcher. In order to control the money supply the government cut borrowing and spending, which in theory would reduce the money supply, inflation and unemployment but interest rates had to rise to stop consumer borrowing, which in turn increased the exchange rate.

The business will witness higher sales volume as the reduced prices will attract more customers to its products. By lowering prices of the outputs, the business will increase satisfaction of its customers. By boosting customer satisfaction, the business is able to absorb and retain the customers of its products for a long period of time The business should not take the idea of lowering prices lightly. This usually comes with a lot of disadvantages to the business which include; Reducing the prices leads to excess demand which will exceed the company’s total supply of its products. This makes the business incapable of satisfying the high market

Introduction For many centuries, technology has encouraged growth: through increases in inequality and the market labor. Economists say that structural unemployment “occurs because workers don’t have the particular skills demanded by employers.” (Structural Unemployment: The Economists Just Don 't Get It. (2010, August 4)) There are many who question if technology has indeed raised or increases structural unemployment or if it hasn’t worsened the situation (by machinery taking over the jobs of humans for example or jobs that need a particular set of skills). But let’s say that technology changes do increase structural unemployment, why do most governments and economists encourage such change? This I will answer below.

When the spending more than government can pay back and compensate by printing money, they will lose their credit rating and have to pay greater interest on their debts. Money supply need to keep pace with the size of the economy. If money printed at a rate faster than the economy grows, there is inflation as the value of the money drops. Since each ringgit is worth less, it takes more of them to buy the same things, so prices go up. The more money there are representing the same amount of wealth, the less each ringgit is worth.

The effects from consumption taxes may seem welcoming for the bulk of taxpayers, but it too seems threatening for the economy. This type of tax system brings more job opportunity and enables people to save more money, which both helps sustain a stable growth for the economy. In order to stable the economy, the government collects their revenue directly from consumer goods at the point of sales through companies or retailers, which enables business to keep booming and make profit . Clearly, this seems to maintain stable cycle and yet it also generates problems within the consumption tax system. The system could also jeopardize the economy through high sales rate, creating a higher unemployment rate, which causes an inflation and affecting certain class levels than others.

The lower classes are suffering as the upper classes continue to thrive, and this must be improved if the United States expects to be a global economic leader. The tax cuts for the wealthy have caused the great divide between classes to separate further, and tax increases for the wealthiest Americans will not only help to improve this income gap, but they can fund programs that will help the lower classes. In Oct... ... middle of paper ... ...late the economy have been proven ineffective, as they promote inequality between wealth classes. We can benefit everyone through these increased taxes, funding new programs and distributing wealth more equally among the population. The wealthy may disagree, but in a country increasingly divided by income, we may not have a choice.