Inflation, Its Causes and Nexus with Unemployment

Paper Info
Page count 3
Word count 826
Read time 4 min
Subject Economics
Type Essay
Language 🇺🇸 US

Causes of Inflation Emergence

  • Disproportion among a country’s goods and money supply;
  • Increasing the amount of money for large expenses;
  • Mass use of currency for credit programs;
  • The absence of mechanisms for regulating monopolists’ prices;
  • The influence of trade unions blocking wage distribution;
  • Reducing the parameters of the state’s GDP;
  • A sharp increase in taxes and duties.

Monetary Causes

  • The discrepancy between money demand and the commodity mass (Davig & Doh 2014);
  • An excess of income over consumer spending;
  • The deficiency of the state budget in conditions of need;
  • Excessive investments exceeding the possibilities of the economy;
  • Outpacing wage growth compared to production growth;
  • Unjustified expenditure of money for short-term state needs;
  • Financing the budget deficit by borrowing.

Structural Causes

  • The disintegration of the national economic structure (Nunley et al. 2016);
  • Lagging development of the consumer sector;
  • Decrease in the effectiveness of stable investments;
  • Substantial containment of the consumption growth;
  • Imperfections in the system of economic management;
  • The reduction of revenues from foreign trade;
  • Inter-sectorial imbalances caused by incompetent management.

Classification and Types of Inflation

  • Offers do not keep up with demands (Curtis, Garin & Mehkari 2017);
  • Increased growth in costs for goods production;
  • Increase in the value of goods with the same proportions;
  • Forecasted increases in prices for goods;
  • Sudden and financially unpredictable price increases;
  • Decline in production along with rising prices;
  • Changing consumer strategies in favor of specific goods.

Social Consequences of Inflation

  • Inflation leads to the redistribution of national income (Lim & Sek 2015);
  • The depreciation of money turns into additional taxes;
  • Wage growth rates are slow and sometimes unlikely;
  • The number of citizens with low incomes increases;
  • The possibilities of buying goods become less real;
  • The state cannot subsidize important social spheres;
  • Poor citizens cannot count on full-fledged support.

Relationship between Inflation and Unemployment

  • The more jobs, the higher the population’s income;
  • Increased demand for individual goods and services;
  • Decreasing numbers of all unused resources;
  • Increasing production is proportional to decreasing incomes (Khan 2015);
  • Rising prices are reduced only through unemployment growth;
  • Inflationary expectations significantly stimulate wage increases;
  • Over time, production returns to the current level.

Influence of Inflation on Incomes

  • Prices rising negatively affects purchasing power (Lim & Sek 2015);
  • Imbalance between nominal and real incomes is constantly growing;
  • Inflation affects the income of industrial enterprises;
  • Financial transactions are often stretched over time;
  • Nominal profits can quickly lose real value;
  • The need to reduce time between selling and paying;
  • The influence of inflation on incomes is undeniable.

Influence of Inflation on Price Policy and the Distribution of Finances

  • Prices rise in proportion to the growth of inflation (Khan 2015);
  • Real income of the population is taken into account;
  • The level of falling purchasing power is determined;
  • Customer orientation is a key and basic criterion;
  • Prices are formed due to the evaluation of demand;
  • Revenues of potential consumers are taken into account;
  • The lack of opportunity to forecast demand in advance.

Influence of Inflation on the Country’s Economy

  • The type and intensity of the economy is considered;
  • Inflation takes effect after the threshold of 2% (Yesikar et al. 2015);
  • It is possible to control such a mechanism;
  • The regulation of supply and demand is achieved;
  • The economy of the country is predictable;
  • Hyperinflation has serious implications for the economy;
  • The industry can degrade under the conditions of hyperinflation.

Influence on the Redistribution of National Income

  • Sources of income can be constant and variable (Davig & Doh 2014);
  • Inflation redistributes income among creditors and borrowers;
  • Interest rates play an essential role in assessing inflation;
  • Floating interest rates can protect lenders (Nunley et al. 2016);
  • The consequences are severe for people with fixed incomes;
  • Non-fixed incomes can increase faster than rising prices;
  • Inflation stimulates the creation of more products.

Methods for Reducing the Rate of Inflation

  • The behavior of market participants affects inflation (Lim & Sek 2015);
  • Attempts to decrease inflation expectations of the population;
  • Ensuring trust in public monetary policy to reduce inflation;
  • Establishing control over cash flows within the country;
  • Restrictions on the purchase of foreign currency;
  • The sale of foreign exchange assets in the country;
  • The reduction of government spending on social welfare payments.

Correct and Timely Calculation of the Index of Inflation

  • The inflation calculation formula is used to reduce it;
  • To calculate the level, the consumer price index is found (Yesikar et al. 2015);
  • Prices for some types of goods are studied;
  • The consumer price index is established by months;
  • The time interval for the calculation is chosen;
  • Goods prices are determined for an earlier date;
  • Information about prices for the selected period is studied.

Additional Ways to Solve the Problem of Inflation

  • The fulfillment of set goals for inflation;
  • Seeking help from countries with stronger economies;
  • The creation of comfortable conditions for business development;
  • A significant reduction of the state apparatus;
  • A policy on import substitution aimed at developing enterprises;
  • The reduction of costs for the purchase of goods abroad;
  • Attempts to increase export products for budget replenishment.

Reference List

Curtis, CC, Garin, J & Mehkari, MS 2017, ‘Inflation and the evolution of firm-level liquid assets’, Journal of Banking & Finance, vol. 81, pp. 24-35.

Davig, T & Doh, T 2014, ‘Monetary policy regime shifts and inflation persistence’, Review of Economics and Statistics, vol. 96, no. 5, pp. 862-875.

Khan, H 2015, ‘The impact of inflation on financial development’, International Journal of Innovation and Economic Development, vol. 1, no. 4, pp. 42-48.

Lim, YC & Sek, SK 2015, ‘An examination on the determinants of inflation’, Journal of Economics, Business and Management, vol. 3, no. 7, pp. 678-682.

Nunley, JM, Stern, ML, Seals, RA & Zietz, J 2016, ‘The impact of inflation on property crime’, Contemporary Economic Policy, vol. 34, no. 3, pp. 483-499.

Yesikar, V, Mahore, RK, Dixit, S, Shivram, G, Parmar, S & Jain, C 2015, ‘A study to evaluate inflation and price rise: effect on common man’, Journal of Evaluation of Medical and Dental Sciences, vol. 4, no. 30, pp. 5172-5178.

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Reference

EduRaven. (2021, November 1). Inflation, Its Causes and Nexus with Unemployment. Retrieved from https://eduraven.com/inflation-its-causes-and-nexus-with-unemployment/

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EduRaven. (2021, November 1). Inflation, Its Causes and Nexus with Unemployment. https://eduraven.com/inflation-its-causes-and-nexus-with-unemployment/

Work Cited

"Inflation, Its Causes and Nexus with Unemployment." EduRaven, 1 Nov. 2021, eduraven.com/inflation-its-causes-and-nexus-with-unemployment/.

References

EduRaven. (2021) 'Inflation, Its Causes and Nexus with Unemployment'. 1 November.

References

EduRaven. 2021. "Inflation, Its Causes and Nexus with Unemployment." November 1, 2021. https://eduraven.com/inflation-its-causes-and-nexus-with-unemployment/.

1. EduRaven. "Inflation, Its Causes and Nexus with Unemployment." November 1, 2021. https://eduraven.com/inflation-its-causes-and-nexus-with-unemployment/.


Bibliography


EduRaven. "Inflation, Its Causes and Nexus with Unemployment." November 1, 2021. https://eduraven.com/inflation-its-causes-and-nexus-with-unemployment/.

References

EduRaven. 2021. "Inflation, Its Causes and Nexus with Unemployment." November 1, 2021. https://eduraven.com/inflation-its-causes-and-nexus-with-unemployment/.

1. EduRaven. "Inflation, Its Causes and Nexus with Unemployment." November 1, 2021. https://eduraven.com/inflation-its-causes-and-nexus-with-unemployment/.


Bibliography


EduRaven. "Inflation, Its Causes and Nexus with Unemployment." November 1, 2021. https://eduraven.com/inflation-its-causes-and-nexus-with-unemployment/.