Government Vs Inflation
TOPIC: FOR GRADE 10B_NEW
Government should play more active role in regulating the rate of inflation in an economy
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April 1 to 7, 2013
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bipinkala
Inflation is the rate at which the general level of prices of goods and services is rising and subsequently purchasing power is falling. Inflation is the biggest problem of an economy. Money supply is the entire stock of currency and other liquid instruments in a country’s economy as of a particular time. The money supply can include cash, coins, and balances help in checking and savings account.
ReplyDeleteGovernment has a role to controlling inflation in their country. They can increase the interest rate. If government rising the rate of interest in central bank they can attract the society in their county to save their money in the bank account and the bank give the high rate of interest for borrow the money. So they don’t want to borrow money because they should pay more to pay back their loan. The government also can control their export and import of their country. The government can decrease their export to overseas and makes the product that sale in their country increase. If they can control their export it can stable the price of that product in their country. If they export more products to overseas the price of the product in their country become expensive.
But the actions that take by the government have a big risk. They should maintain their economy. However if they cannot carried out carefully this could over stimulate demand for products, particularly imports and create inflationary forces for example price hikes and excessive wage settlements. The government can control everything they can reduce the export and import of product for their country. If they reduce the export of their country it can effects the foreign exchange of the country. And the revenue of the government will reduce, if the revenue of the government reduce it can effects the expenditure of the government. And the value of their money will decrease because they reduce their export and the value of foreign currency higher than the value of money in their country. If the government increase the rate of interest of borrowing it can makes the poor people who wants borrow money for the important problem worried to borrow because they don’t have enough money to pay back their loan. And the government also can reduce their import of their country that can effect the satisfaction of the people in their country. If the society needs goods from overseas they should pay more because their country doesn’t import it.
So the active role of government in inflation can makes negative impact for the society because it can reduce the value of the money and government can make poor people worry to borrow money from bank and poor people will borrow from other people with the high interest. If the government wants to control the inflation but they can’t controlled carefully they can make the people in their country suffering. And for the producer in their country can lose their profit because they can’t export their product. Also for the employees, their income will reduce.
i
ReplyDeleteInflation is general rise of prices in the market. Inflation can happen if the aggregate demand is higher than aggregate supply. Governments are the one who set rules and regulation in a country. They are supposed to maintain their country’s condition and fulfill macro-economic aims. It is one of the government’s aims to regulate the rate of inflation as low and stable as possible.
ReplyDeleteGovernment should play more active role in regulating the rate of inflation. Inflation caused a lot of trouble in the country such as reduced supply in the market thus increase inflation to hyperinflation because prices of raw materials increase and producer tend to reduce production and reduce work force which means unemployment in the country will increase and therefore people will live in poverty and death rate may increase.
Inflation can changes a lot of things in the country, such as in Zimbabwe, this country is having a high inflation that caused by too much producing money. To look at it, Zimbabwe’s value of money really decreases and hyperinflation happened. This also causes the people there can’t satisfy their needs as goods and services tend to be expensive and prices could changes a lot of time and unstable. For example, people wants to buy an apple cost $5 when he got there the price increased to $6 while he only bring $5 then he must go back home to take another $1 to buy it. However, there are transportation costs which mean a price of single apple that increased by $1 and transportation can causes burden to a lot of people that can’t provide much their family and therefore it becomes government’s objective to maintain the rate of inflation.
Government can maintain the rate of inflation as low as possible and stable by increasing some several taxes on export to reduce the amount of supply being out of the country. Then producer will tend to sell the product within the country and therefore create increasing aggregate supply in the market.
Again, government can use the help of financial institution which is central bank. Central bank can regulate new rules and thus increasing the interest rate of borrowing money in the country. That means less people will borrow less, and spending in the market will less. Which mean aggregate demand will fall as people spend less and then aggregate demand and supply can be stabilized to create stable inflation.
Also, they can reduce inflation by increase productivity encouraging businesses to produce more and give reduced taxes on direct and indirect taxes so producer will not be burden by the increase of inflation price and can do production like before and may supply more where they can help to stabilize the inflation like the government aimed.
So, government can take few actions such as increasing taxes on export to increase amount of supply in the country, increase the interest rate of borrowing to make people do less spending in the market thus decreasing aggregate demand and also reducing taxes and indirect taxes on company and people it can help them to continue productivity like always, and not discouraged by the increasing inflation as real income is also increasing and therefore can stabilize the inflation. Unless, government want to have a decreased value of money or poverty in the country they must take action on regulating inflation in the economy.
Inflation is a general and continuously rise in the level of prices of goods and services. Inflation can be measured by looking at CPI (Consumer Price Index) or RPI (Retail Price Index). Low and stable rate of inflation is one of the macroeconomic objectives by the government. It is government’s role to regulate the rate of inflation in an economy.
ReplyDeleteInflation can be caused by many factors. First, monetary rule. The main cause of inflation is ‘too much money chasing too few goods’. Government should only allow the supply of money increases at the same rate as the increase in GDP. Otherwise, too much money in an economy may cause inflation. Some governments increase the money supply faster than the growth of GDP to boost demand and reduce the unemployment. Increases demand will reduce the unemployment as firms employ more people to increase the production to meet the demand. However, the inflation will occur as the demand is greater than the supply. And later, high inflation will reduce the purchasing power of people and demand will fall again.
Second, Demand-pull inflation. Increase in aggregate demand will cause inflation if the aggregate supply doesn’t increase as the same rate as demand. Therefore, government should control the aggregate demand in an economy. Government can reduce the demand by reducing the money supply in an economy and also by increasing the rate of interest. High rate of interest will attract people to save more as they will get higher return, and it discourages people to borrow money as the interest is high. Less borrowing lead to less spending, as they will not have as much money as they have if they borrow money.
Third, Cost push inflation caused by rising production cost passed on by firms to consumers. The cost of production can rise because the labour demand for higher wages. Therefore government should restrict the power of trade union to prevent high wage rate. Because high wage rate will raise the level of unemployment as firms may employ less workers. Government should also control the other cost of production such as materials, transport, energy, etc.
Fourth, imported inflation. It means rising price of goods and services which are imported. It’s caused by a fall in the value of national currency against others, that makes import more expensive. So, government should control the international trade to maintain the value of national currency. Government can do that by balancing the exports and imports, and also by controlling the rate of interest within the country.
Government should really regulate the inflation. Otherwise, many problems will occur. First, inflation reduces the purchasing power of the people, which it reduces the real income of the people. People on low income will be harder to fulfill their needs, as they can’t buy as many things as before the inflation. Second, it imposes additional cost on firms. Such as print new price list, change price labels, reprint menu, etc. It may also impose on individual consumers. Third, It reduces the competitiveness of exports. As the price of export goods and services are rising because of inflation, it will be hard to sell goods and services to overseas as the goods and services in another country are cheaper because there are lower inflation. Fourth, It creates economic uncertainty. Inflation makes consumer, firms and government hard to plan ahead, they may be uncertain about their cost/impact to profit in the future. So it reduces the confidence of firms, and firms may be reluctant to invest more. It will reduce the employment and future economic growth.
So, government should play more active role in regulating the inflation in an economy. The inflation should be stable. Government can do several things to make it stable, but it may require hardworks and time. Stable inflation is the best condition, since inflation and deflation are bad.
Charles 10BN
Inflation is 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 .a chief measure of price inflation in the inflation rate, the annualized percentage change in general price index normally the consumer( price index over time ).
ReplyDelete1st The way governments used control inflation was by the raising and lowering of central bank interest rates. This had the effect of raising or lowering the relative value of the national currency .It also affected the money available investment and the running costs of most businesses ,so a reduction of interest rates would reduce the value of currency and also will make exports cheaper imports dearer ,however if not carried out carefully this could
overstimulate demand for products ,particularly imports and create inflationary forces price hikes and excessive wage settlements .
2nd Government also must make limit for company that import their products to overseas this called balance of international trade and payment because if the total import is bigger then total export the product that available in local country itself will small and this can make the price in local country itself expensive and can make inflation because the supply is low but the demand is high
3rd Government can use fiscal policy to check inflation .This means that government raises tax rates which in turn would bring down disposable income and would hence impact demand .In addition do this the government can cut down it’s own spending as well as borrowing targets as well ,this would reduce the demand pulled inflation in the country .Demand pulled inflation is one of causes of inflation .
4th Government can stop printing money or even keep printing money but reduce it because when the government printing money a lot rich or people who have money not care about the inflation if this happen the inflation can keep rising ,but not everyone in the country has money and can cope with inflation many poor people who can’t cope with inflation and can be said to be in trouble or can not achieve their living standard because there are 2 categories of basket of goods poor and rich ,so if government reduce and control inflation with reduce printing of money poor people may can achieve their living standards .
5th Government should limit the numbers of investors who will invested in the country in any sector as well as many investors are invest in a sector the more demand of the people ,if the demand are more also more due to inflation consumer demand targeted to raise the price and experience inflation
so controlling inflation is not and easy thing and not everyone can cope with or trough the inflation risk to be taken too high so the direct intervention of the government would reduce the inflation of country and to support welfare of society either its poor or rich people .
-angraini natalia 10 bn -
A good and stable economy is every country’s aim. Lots of things could happen to an economy if the people responsible for that, the government, is not too good in controlling and understanding the economy. Inflation is one of the common problems in every country’s economy. Price inflation is the general rise in prices of goods and services. It happens when aggregate demand of the society is higher than the aggregate supply produced.
ReplyDeleteOne of the government’s macroeconomic aims is to control a low and stable inflation of the country. It is because the government is the ones responsible to have a good economy. Often government excesses in fiscal policy like high taxation, high government expenditure, unsustainable social security schemes, control over markets, may contribute to inflation. Government can also control the interest rates of the central banks so that people will start to save more and spend less and avoid inflation. Other than that the government can control the exports and imports of the country. Imports should be less than exports so that the country could earn deficits from exporting and less importing. By doing that, the country’s earnings will increase. Controlling the exports can stabilize the prices of goods and services from the country, but if the prices of exports are higher overseas, the products sold may be expensive in the country.
Government may have difficulties and may encounter risks by doing things to control inflation. If they fail at controlling the economy from avoiding the inflation, the demand for import products may increase. If demand increases price will increase and people will want to earn more by having higher wage rates. Government may reduce the exports and imports, but then if the exports are reduced the country’s deficit/earning will eventually decrease as well. Value of the currency will decrease because if the government’s revenue decreases it will affect the foreign exchange rates. Having less value of money, prices will of course keep on getting higher and the country will suffer from hyperinflation. Cheap and affordable goods and needs will be expensive and people can’t afford it any longer. Poverty will be there, unemployment will be there because firms cannot pay accordingly to high wage rates and the country will have an economic crisis that is hard to avoid/solved. And if imports are reduced, the consumers will not be satisfied because the market only provides local made goods and services.
In conclusion, the government’s objectives are to control low and stable inflation, but by doing things to avoid inflation, they may encounter problems and obstacles that may danger the country’s economy even more. Fatal errors can lead to high unemployment, poverty and decrease in value of money. So, it is better if the government to do less intervention to control price inflation, because they are the strongest lead in the market, if they do something wrong the whole thing will go even worse.
Jessica 10 BN
Inflation is general and sustainable rise in the level of pricing goods and services over a period of time. Inflation happened because of many reasons. One of the reasons is demand pull inflation, meant when Aggregate Demand is greater than Aggregate Supply. Aggregate demand and supply itself means the total demand and supply in a country. When this happen, the demand is increasing but the supply is less, so the price of goods and services will be increase.
ReplyDeletee.g When the export rate is higher than import, it means there will be plenty of money to the exporters. So, the exporters in a country have a lot of money, and they will invest their money, they are willing to pay higher wages, and they are willing to spend more. When they spend more, Aggregate demand will increase even the Aggregate supply remain the same. it will affect the prices of goods and services, so no wonder it can be increased.
Inflation itself can be harmful to the society, such as the disposable income of a person decreasing, it means their income become less, and for the poor people it become a big impact for them because they might cant afford their daily payment they used to pay before. If hyperinflation happen, like in Germany in the past year, the value of money become less, like you have to bring a bunch of money just to buy a bread.
Government is the major commodity who is responsible for this inflation. Also the government has their macro-economic objectives to achieved,which is low and stable inflation. In fact, government can do many things to control inflation, such as makes regulation for import and exporting goods so it will keep stable and balance, because if excessive export happen, number of supply in a country is decreasing but the number of demand keep flow, and it will causes inflation.
Bank also can increasing their borrowing interest rate, so many people will do less borrowing, and then bank should increase the interest rate so people will do more saving. In this case, the value of money is increase, and people will spent less on unimportant things and it will create stable aggregate demand within a country.
In a role of regulating the rate of inflation, not only government involved. Central bank is playing important role too because central bank is the only institution in a country who can print money. In case if the country have to pay debt, and then government ask central bank to print money more. It will reduce the value of money itself, because to many printing money and the value of the money gone. This will cause inflation. So in this case, government active role is not really needed because it brings bad effect to the society.
So, government should play an active role in regulating the rate of inflation, because government is one and only institution to have right to control it. But when they want to take decission, they have to think and consider the risk they’re going to take, is it harmful for the society, or for the economies in a country.
Inflation is the general, sustainable and continuous rises in level of prices of goods and services in a country's economy. Inflation also become one of the government objectives which is keep the low and stable inflation in an economy. Government must regulate and play active regarding to inflation that happens in a country.
ReplyDeleteInflation is happen when AD or Aggregate Demand is higher than AS or Aggregate Supply (AD > AS). Aggregate Demand can be find by C+I+G+(X-M). Which C is stand for household consumption then I is Investment after that G that stand for Government expenditure and last is X-M which are each stand for Export and Import. There are some several causes of inflation such as; demand pull inflation, cost push inflation and monetary inflation.
Demand pull inflation is happen when AD>AS. In consumption of household when income of people increase and direct taxes decrease it will make the aggregate demand increase which cause inflation, in investment factors is when confidence of people increase and rate of interest also corporate taxes decrease it will make the aggregate demand also increase, other in government expenditure when people demanded for roads, public services and others that will make capital expenditure that make the aggregate demand increase. The last factors is export and import, when export increases the wages and production will increase that causes inflation because if wages increase people will demand more and make inflation increased.
Cost push inflation has some factors such as cost of production increase then price of raw materials increase and government increase corporate and direct taxes. What make cost of production increase is wages increase then when cost of production increase the price of goods and services that not in the competitive market will increase and the second option is they can produce less then QS or Quantity Supply will fall down then AS will fall down that cause inflation.
Monetary inflation is the issue of new money. New money can be in form of printing new currency, credit creation and deficit financing, these all will increase money supply in an economy that cause higher inflation in the future. When supply of money increase the demand of people will also increase this will make the production increase because they will try to fulfil the demand of people then when production increase it will reduce unemployment in a country. Later when inflation is getting higher it will make the people stop demanding and it can reduce the inflation.
So, government in this case must play more active to regulating these 3 causes of inflation that may happen. Government can measured inflation by Consumer Price Index or Retail Price Index or the other is Wholesale price Index. By measuring the inflation government can know how much inflation rate in present and can plan for the future of the country’s economy. Government also can prevent the inflation by increasing taxes and rate of interest then by that the demand of people can be reduced and the inflation also can be reduced. Government must consider factors that can help the country to reduce their inflation and achieve their objectives.
Inflation is the general rises in price of goods and services. Sometimes government go to far in controlling the inflation , government can controlling the inflation by the contractionary fiscal policy and contactionary monetary policy .
ReplyDeleteFirstly government can take the contarctionary fiscal policy , government use this policy by increasing the amount of direct and indirect taxes . In this case society’s demand for product will be decreasing because of their reel income is decreasing . Example like in japan government set the taxes for coorperation is 40.69% and for individual 5 %- 50% . this can causes some negative impact for society because of higher taxes can make the reducing in work incentive , because of government charge to many taxes so they cannot enjoy their income , because of after deducted with taxes their reel income will be not to many. Reducing in work incentive can affected the quality of the product the demand for the product can decrease in local or overseas.
Secondly higher taxes means the demand of society will falling down that will causes the two negative impacts one of them is affected to the government aim objectives in macroeconomic hogh and stable employment , is the number of unemployment people will increasing because as the demand falling it menas the company will have less sales revenue and if their revenue cannot cover it’s cost , in order to avoid the bankruptcy they have to cut cost by cutting their workers job secondly the demand for their product is not too big that can causes the bankruptcy for some of small firms because of the falling in demand in such a long time.
Third government can take the contactractionary monetary policy , government use this policy by raising the interest rate to make money herder and more expensive to abotain. Example Germany experienced rates closed to 90% in the 1920s until about 2% in the 2000s and during the hyperinflation in zimbabwe in 2007 the central bank at there increase the rate for borrowing until 800%. Higher interest rates can make people harder to fulfill their needs especially for people that suffer in poverty because the price of goods and services can increase so high like what happen in several countries , this can affected with people living standard , the living standard can be decrease.
Four the investors will not attracted to invest again because the rate of borrowing is really high like what happening in Zimbabwe in year 2007. And also for the ather investors they stop their developing in their business because with increasing in interest rates everything is expensive include borrowing come businesses like to borrow money from bank to develop their business .
So government must not handle the inflation to far because it will make the economy to recession , and also poor economy in a country the it will affected with number of unemployment people also the investors will cut back their investments because of high interest rates, so government must keep balance so it will decrease the inflation but still with good conifidence in economy .
Inflation is a condition when all the price of the goods and services are rising. Inflation can be happen if aggregate demand is higher than aggregate supply. Government is a strong organization that control and maintain the economic condition of the country and many other important factors that can be only done by government.
ReplyDeleteGovernment should play more active role in regulating the rate of inflation in an economy becauseinflation can cause many bad effects to the country like low supply in the market , abnormal prices , and many causes that can give a bad effect to the government and the society.
If the inflation is keep rising and government doesn't do any action , therefore will create hyperinflation. Hyperinflation is a high level of inflation when the rate of inflation is more than 100% even it can be 300% rises from the original prices.
Inflation can make the people suffer due to increasing of goods and services. So there will be more unemployment and increase poverty of the country. Its also bad for poor people because they can't afford they needs. In the high cases the poor people will be death because of no money to buy foods , drinks , clothes , etc.
There are three causes of inflation , the first is demand pull inflation. Demand pull inflation happens when aggregate demand is higher than aggregate supply. If the income of the people and taxes are decrease , the aggregate demand will be increase that can cause an inflation.
If the government make more public sector such as roads , street lights , highway , etc. It can be also increase the aggregate demand. So the government must take an action to reduce the aggregate demand such as redducing the amount of money that are supplied and increasing the interest rate.
If the interest rate is high there will be more people that save more money and also there will be less people that are bowrrowing money due to high interest rate,
Second factor is cost push inflation , cost push inflation can be happen when the production process are rising. It can be raising because the labour will be ask for higher wages due to the increasing of the production. So the government must give an act to cover this problem.
Cost of production can be increase due to many factors such as increase of the wages , etc.
Third factor is monetary inflation ,monetary inflation happens when the supply of money are increasing. If the supply of money are increasing the production will also be increase that therefore can reduce unemployment and poverty in the future.
So to avoid monetary inflation the demand of supply of the money must be reduce otherwise the inflation will increase.
So the government must more active in regulating the rate of inflation in an economy because if the government doesn't give any act the people of its country will be ruin due to unstable prices in the market and increases of the rate of unemployment
that can be causes poverty for the country.
The definition of inflation is the general rise in the level price of goods and services. Economists generally agree that high rates of inflation are caused by an excessive growth of the money supply. High inflation is an invisible negative economic factor that causes erosion in workers’ savings and savings buying power, diverts resources from productive investment and virtually slows down the economy. There are some negative effects of inflation, that includes an increase in the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings, and if inflation is rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future.
ReplyDeleteIn this case, governments have rights to control inflation. The government has several ways to control inflation. It can do this by means of fiscal policy that manages the aggregate demand by using government spending and also to reduce inflation government should reduce expenditure and raise taxes.
Government could use other way, for central bank to diagnose its causes in depth by implementing pragmatic and effective policies to control inflation. Such as, raising and lowering of central bank interest rates. This had the effect of raising or lowering the relative value of the national currency. It also affected the money available for investment and the running costs of most businesses. So a reduction of interest rates would reduce the value of the currency, make exports cheaper, imports dearer and make businesses more profitable.This way could slow down the inflation that happens in macro-economy. Like for example, the Brazilian government is using tax cuts over some managed prices to hold inflation.
However, if the government carried out the inflation, it would create inflation forces. This could over-stimulate the demand for products particularly imports and create inflationary forces such as price hikes and increasing in wage settlements and other problems.
For example, due to wrong policy of government, continues inflation trend and prices hike many running industries force to closed or reduce their man powers in the name of “cost cutting”. More interesting to share those who are rich businessmen’s always think for “cost cutting” which begins from reducing own staff which lends to un-employment than crime rates increased.
In the developing and under-developed economies, fiscal policy and monetary policy is often biased politically, ignoring the basic economic needs. As a result it fails to fix and control the most crucial and important issues like inflation.
For example, when the inflation rate is running at "double digit" it is referred to as "hyper-inflation" which is not at all desirable and must be brought down below double digit. The government and its central bank have been trying hard to control and contain inflation and taken some corrective measures but the measures and steps taken are not persuasive and effective enough to meet the challenges and the economy is encountering various problems in different arenas. The government's fiscal policy and its central bank's monetary policy are in conflict in some sensitive areas.
So, in conclusion, as mentioned it government is the main decision maker for any country to control and contain the rate of inflation. But, government should not control the inflation too far as government intervenes might cause inflation become worse, people become un-employed, and might cause ignoring the basic of economic needs in a country and also lead to arising to other problems.
-Christy Kusumo-