Inflation Essay

645 Words2 Pages

There are many factors that affect the economy, inflation is one of them. Basically inflation is risingin priceof general goods and services above a period.As we see value of money is not valuable for the next years due to inflation. Today every country has facing inflationary condition in their economy.GDP deflator is a basictool that tells the price level of final goods and services domestically produced in an economy.GDP is stand for gross domestic product final value of goods and services, Furthermore GDP deflator shows that how much a change in the base year's GDP relies upon changes in the price level. . Inflation in contrast, how speedy the average prices intensity is increases or changes above the period so the inflation rate define the annual percentage rate changes in the level of price is as measure by GDP deflator more over GDP deflator has a advantage on consumer price index because it isn’t only based on a fixed basket of goods and services. It’s a most effective inflation tool to identify the changes in consumer consumption and newly produced goods and service are reflected by this deflator. Consumer price index (CPI) is also measure the adjusting the economic data it can also be eliminate the effects of inflation, through dividing a nominal quantity by price index to state the real quantity in term. Most of the economists agreed high inflation is caused by the excess growth of money supply .According to M.Freidman’sdictimum said inflation is a monetary phenomena he developed a monetarism model which is on three bases:the quantity theory, the expectation augmented Phillips curve and Okun’s law. In this model he taught the real effect generate due to growth of money supply .Another important aspect of relationshi... ... middle of paper ... could be depreciated because export should be increases on that country while other country is on appreciating position they will pay lesser currency rate while import any commodities. Finally, professor Prest considering the effect of price inflation, he concluded indicators of excess public revenue over expenditureare both relatively to the GNPhe told that if the income of the people will raise they will also facing the price inflation because higher the income pays higher incometax, no matter whether the increase in income is real or not. On the other side of expenditure, if cost of the state is raising, people wanted to make heavy demand on the social services so the relative price effect are depending upon the inflation rate . For instance if the rise in money wages and the share of total wages cost rise then its pushes up the inflation in the public sector.

Open Document