TOPIC: FOR GRADE 10B_NEW
"Explain how inflation will effect the various sectors in an economy".
Time Duration for submitting the Article is
April 8th to 14th, 2013
Positive effects Sector Negative Effects
Angraini Household Bella Devina
Charles Firms Christy
Evelyn Government Jessica
Jonathan Export Import Leonardo
Maria Social Welfare Richard
Write your opinion here in 500 Words. [20 Marks]
"Marks allocation will be in accordance to the Rubrics"
Note: I will give zero if your writing are not in accordance to the rubrics mentioned.
Inflation is a general and continuously rises in the prices of goods and services. Inflation has positive and negative effects to an economy. Inflation brings many impacts especially to the firms. Firm is a business organization involves in the trade of goods and services. It can be a corporation, limited liability company and partnership. Inflation could bring positive effects to the firms.
ReplyDeleteFirst, since inflation means higher prices in the market. It would benefit the firms as they will earn more revenue, because the prices are higher. However, firms usually enjoy the benefit in the first period of inflation when the inflation doesn’t really significant and the negative effects of inflation are not there yet in the economy, and also when the workers haven’t asked for higher wages. At that time, consumers are still willing to pay a little bit more prices, because the inflation rate is rising slowly and not significant. Firms may enjoy more benefit if the causes of inflation is from demand-pull inflation or monetary inflation which from huge excess in supply of money. If the cause of inflation is from cost-push inflation, firms may not get any benefit as the rises of prices are from higher prices of materials. Firms may still have same gross/net profit margin.
Second, Inflation can benefit big cartel. Big cartels can destroy small businesses out of market. Since inflation happens, small businesses have to increase the prices of goods and services. Especially, if the cause of inflation is cost-push inflation. Otherwise, small businesses may not make any profits, because their cost increases. Then, this condition will benefit big cartel. Since big cartels have a huge power, they could control the prices in the market. Cartel may agree to reduce the prices when the inflation happens to force small businesses out of the market. When they reduce the prices, they may get less profit or even loss. But after the small businesses out of the market, cartel will have greater market shares in the market. This pricing strategy also known as Destruction Pricing.
Third, Inflation will benefit the firms if the firms borrow money. It will benefit the firms if the rate of inflation is greater than the rate of interest. As the firms return the money with interest, the real value of the money paid back will be lower. Example if a firm borrows $10.000 to buy a motor-cycle with annual interest rate 5% in 2011. In 2012 there is an inflation of 10%. Then in 2012,the firm return the money to the lender with interest at $10.500. In fact, because of inflation, the price of the motor-cycle has increased to $11.000. The real value of money lent by the lender to the firm has reduced by 5%. The lender can’t use the money paid back by the firm to buy the same motor-cycle as the firm did. So, it shows that the firm gets the benefit from the inflation.
Fourth, Inflation within a country can benefit the overseas firms. Since the inflation in other countries are low, their goods and services are more competitive because their prices are lower than the prices in the country which there is an inflation. It also benefit the domestic firms that resell imported goods and services. They may buy cheaper goods and services, and sell it to the country which inflation happens. Then, firms will sell it at lower prices than the market prices to boost profit.
So, Inflation not always brings negative impact to the firms. It also brings positive effects to the firms. However, it may only benefit particular firms, and may only beneficial in particular cases/condition.
Charles 10BN
Inflation or 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 provided by the market. Controlling low and stable inflation is one of the government’s macroeconomics aims that they are eager to achieve. It may benefit the country’s economy more if inflation is avoided.
ReplyDeleteInflation can affect different sectors in an economy. Most of them are negative effects. The government is the most important and leading role in the economy. Inflation have cause the government problems that are hard to solve.
First thing, inflation can lead to a damaging period of boom and bust economic cycles. Which is what the government trying to do, make a better economy for their country. With high prices, poverty may happen and unemployment may increase. And bigger problems for the government may happen.
Second, the government’s deficit or revenue will decrease. They will have to reduce imports and exports of the country. By decreasing exports, revenue of the government will decrease because they are not earning anything through exporting. Demands for will get higher will supply decreases.
The government will have to provide financial supports to the society because inflation is there. Prices of goods and services will get higher and people will have no money to afford them. Government will start to give out subsidies to the society by paying a part of the prices of the goods and services purchased by the society. For example; government gives fuel subsidies of 50%, when the normal prices are Rp. 9000, people will have to pay only half of the original price because the other half is covered by the government. By doing this, the government’s expenditures will increase and with the condition of an economic crisis (inflation) the revenues will not be balanced with the expenditures.
Inflation may cause the high risk in government’s investments. The government invests to get profits and earn deficit for the country’s expenditure, but with inflation there might be a chance that the money invested in investments will be wasted.
Value of money in the country will also decrease because prices of goods and services are increasing way too high. People will have to have more money and government will have to print more money supply. With too much uncontrollable money supply in the country, the value of the money will slowly decrease. People will suffer from poverty and high unemployment, and governments will have to deal with bigger problems. The country will suffer economic crisis and the government will have a hard time getting out of this because the source of their incomes are fading.
Therefore, inflation is very bad for the economy, especially for the government. Inflation may lead into bigger problems for the government to solve and control. Values of money will be less, and everything cheap will be expensive and everything expensive will be unaffordable. Government will have to spend more in the situation where they have problems in finding source for their revenues. Inflation should be controllable, low and stable. According to the government’s macroeconomic aim.
Jessica 10 BN
Inflation is general rises in price of goods and services , there are several good affected of inflation to the government , government usually will take the fiscal policy which is by increasing the amount of direct and indirect taxes , and also monetary policy by increasing the amount of interest rates.
ReplyDeleteFirstly with government charge with high taxes , government can take that as the subsidies for poor people so the distribution of income can run well , so the amount of poor people can decrease , government can subsidise big company too , to become bigger as they grow bigger they can hire more people so the amount unemployment people can decreasing and also it can be used as the subsidies for like teaching organization so the unemployment people that are poor or they not able to pay , still can develop their skill.
And also with high taxes it means government will have big amount of revenue , so besides of subsidise government can use it as the public spending such as to develop the infrastructure , can stimulate macroeconomics and etc , and also government can have budget surplus which is good it means government doesn’t need to borrow money from public, bank , or overseas . Which can causes the debt trap , when debt trap happen every public revenue thet government get is only for pay the debt so government cannot develop the economy .
Government can increase the amount of in direct taxes such as exise duties , exise duties is the amount of money that charge to the special goods such as alcohol and other , which is goods so the demand for that goods in decreasing , so people are motivated to work and if they already have job government doesn’t have to pay for the subsidise for them again. And also with high indirect taxes in indirect taxes such as tarrifs can make the imported goods more expensive in that country which is good because it can develop the local goods and also it can help government to maintain it aim objectives with economic growth in national output .
With high interest rates society will tent to save more , because if they save more they will get high interest rates. Also with high interest rates can attract foreign people to save their money in that country because if the save money their money will be increasing . Like in zimbabwe the interest rates of saving is big so people in america interested to save their money in the Zimbabwe currency.
So government have to maintain the tax revenue well , because nowadays many government do the corupcy of public revenue , and also to manage it’s budget so government will not has debt trap so the country will not develop , and also government cannot make the interest rates to big because it will be hard for poor people especially for poor people because if the interest rate high their living standard will be decreasing so government to pay for more subsidise .
Inflation is general rises in prices of goods and services in a country’s economy. Inflation is continuous and sustainable. Inflation is measured by CPI or Consumer Price Index and called as inflation rate. Export is an activity of ship the goods and services out of the port of a country. The seller that export the goods and services is called “exporter”, meanwhile import is an activity of buy the goods from outside the country into port of a country and the people that do the import activity is called “importers”.
ReplyDeleteIn some countries inflation is really high like in year 1992 in Austria the inflation rate is up to 129%. When the inflation is going up under control it’s called hyperinflation, there are another types of inflation such as trotting, running and walking. When aggregate demand higher than aggregate supply it makes inflation, but inflation may make some positive effects to the import and export of a country.
Inflation makes exporters increase their income because if they are exporting goods when inflation happen they can get more revenues than usual. The other positive effects is when exporters get more income they will increase their production means they must hire more employees so, it can also reduces unemployment in a country. Exporting goods and services when inflation also has positive effect or benefit like increase the national output and income so, government can achieve its objectives.
Importing goods and services when inflation happen also can make the supply increase which can make the inflation reduces because if AS>AD the inflation can be reduced, so government can see many positive effects of inflation to the export and import activity beside the negative effects. They must see both sides and all of them must be analyzed to know is it will make the country’s economy stable and government can reached its objectives or not.
When exporting is higher because of inflation that importing it means currency appreciation is there. So, it can make the exchange rate between the original currency and abroad will get stronger. Inflation also has some positive effects for import it’s like if the importing increase when inflation happen it can make the prices of goods and services of the imported goods increased and become more expensive. So, people will choose to use inside or it country’s product that cheaper than imported goods that get expensive because of inflation.
Government must know how important inflation in every sector, especially export and import because it not only satisfy one government objective but two because if the export and import get benefit from inflation, it may increase the level of national output also income of the country. Inflation not always give bad effects to a country but also positive and help the country to develop more and become a developed country. Inflation must be seen either sides positive and negative and government must maintain and measured the inflation to keep the low and stable inflation of a country’s economy and by that government will reach their objectives and aims.
Inflation is a rise in general level of prices of goods and services in an economy over period of time ,inflation would effect many things ,one of which is a household every household have a lot of needs and therefore inflation greatly affects the households because if the households needs increase the real income will decrease but inflation not always have a bade influence for households .Household is the basic residential unit in which economic production ,consumption ,inheritance ,child rearing and shelter are organized and carried out .Good effect of households
ReplyDeleteRise in saving with price level increase by cutting back borrowing and savings ,with inflation the people would not be wasteful and buy unimportant goods that not needed by the households they would think twice about buying goods that not important for households so people indirectly increase their saving because saving itself is needed for their old age ,with the inflation they will only buy the goods that they really need because if not they must spend more with same total income that they earn .so it’s also mean their total consumption also reduce . Such as:
It will make people manage wisely monthly bills in households such as :telephone bills ,electricity also it’s saving energy because base on research many energy spend on households needs than good for the environment it save energy in other side the reduce of use more electricity will also reduce the monthly expenses that people must spent on households .
Households also has connected with labor if there is people who work become labor it’s very benefit because with there’s inflation nominal wages of labor are slow adjust downwards ,but this not mean the household income rises can be wasteful or invest on unimportant goods and stuff but it will give benefit because more income will be also more in savings .
Another things that also very important is food many people sometimes think that foods consumption doesn’t have many effect on household spending ,but the fact is foods and drink consumption is have percentage more that 50 % of households spending per days also monthly because foods is people needs that must be satisfy everyday and people usually not realized because that’s what they needs but most people in in fancy restaurant not because that they need but because lifestyle and if people account it they will find that they spend more on fancy foods. With there is inflation people will think twice to spent in fancy foods only for lifestyle maybe one time people needed it for refreshing ,but if everyday they spent a lot of money only for fancy food maybe it’s not worthy and maybe they will think use the money for more important stuff rather than spent on food consumption because that’s more needed in inflation situation ,people also may choose to buy raw material such as: raw vegetables ,meat,etc and process by themselves because that have more cheaper cost rather than eat on fancy restaurant .
So the conclusion is inflation not always make bad effect on economy especially households because when inflation happen people may would think twice to spent on unimportant stuff and not wasteful money also can more appreciate value of money itself
-angraini natalia 10 bn -
Inflation is a sustained increase in the average price level of price of goods and services in the macro-economy. If there is an inflation, certainly, most of the firms will get the impacts, either it is bad or benefit impacts. Some inflation could bring positive effects. However, mostly inflation brings negative effects to the firms.
ReplyDeleteFirstly, the major effect of inflation on firms is to discourage investment and makes firms less willing to invest due to the costs of investing that will be changing frequently. This leads, to uncertainty and confusion. High inflation brings with it less predictable returns on capital purchased and also the expectation that demand will fall in the future. This discouragement of investment is one of the main reasons why the government wishes to limit inflation. This is particularly a problem with unexpected cost push inflation raising the price of raw materials.
Second, if inflation is high so does the interest rates. For instance, if a lender normally wants 5% to firms, any firms to use the money in the short term, and inflation is also 5%, so then the lender will want doubled, to be 10%. This puts up the firm costs and makes borrowing less and therefore investment less.
Higher interest rates will turn to reduce in spending and investment. This reduction in aggregate demand will lead to a decline in long term economic growth and increasing in the employment that is more likely to occur during of high inflation.
Third, high inflation happen and for input prices or the production costs of the firms, such as raw materials, wages and supplies are rising. Wages are often the largest of the business cost, and there could be a danger of a “wage-price” spiral where rising costs leads to higher prices, workers ask for a pay rise in compensation standards of employees living, so costs rise again and so on.
For example, products prices increase and so does the wages of the employees. If the inflation rates are 4% then that means in one year £100 will drop in value by 4% so it will only be worth £96 effectively the business must then put wages up to cover this expenses.
Fourth, budgeting is now becomes a problem as firms become unsure about what will happen to their costs. If inflation is high and volatile, firms may demand at a higher nominal rate of return on planned investment projects before they will go ahead with the capital spending and this may have an adverse effect on the level of planned capital investment.
So, therefore, in conclusion, inflation may bring positive effects but mostly are bringing negative effects to the firms. As firms are the most important trading organization in goods and services. and if it is happening in a long-term period, other bigger problems or other disadvantages impacts will arise to other various sectors in an economy. Also, it is clear that inflation can be regarded as the enemy of long-term growth.
-Christy Kusumo-
Inflation is a condition when all price of the goods and services are rising. Inflation in a country will give a lot of bad effect to the country.If all the prices of the goods and services are keep rising , the social welfare on that country will be going bad.
ReplyDeleteIn a country not all of the people is rich , there are also poor people that needs government's help. If there's an inflation in a country that have high rate of poverty it means the poor people will be in trouble. They will have not enough money to buy foods that are needed to life. If the country is in hunger because of inflation it means the social welfare will be in a bad condition.
The society of a country that have inflation will feel there's no social welfare , because the country have a lot of poor people that are dying because of incapability to buy goods and services that are needed.
If the government doesn't give any action to solve this inflation problem , the social welfare of the country will be gone because the society feel no safety , happiness , comfortable. For the rich people inflation also a problem but they still can handle it. But for the poor its a very big problem.
So the government have to give a financial support to the poor people and also foods and drinks supplies every week to recover the social welfare of the country. If there's no help from the government the country will be ruin.
The conclusion is the government have to help the poor people if there's an inflation. Otherwise the social welfare will be going bad and the people will feel the government doesn't care to its country due to no action from the government
Inflation is a condition when all price of the goods and services are rising. Inflation in a country will give a lot of bad effect to the country.If all the prices of the goods and services are keep rising , the social welfare on that country will be going bad.
ReplyDeleteIn a country not all of the people is rich , there are also poor people that needs government's help. If there's an inflation in a country that have high rate of poverty it means the poor people will be in trouble. They will have not enough money to buy foods that are needed to life. If the country is in hunger because of inflation it means the social welfare will be in a bad condition.
The society of a country that have inflation will feel there's no social welfare , because the country have a lot of poor people that are dying because of incapability to buy goods and services that are needed.
If the government doesn't give any action to solve this inflation problem , the social welfare of the country will be gone because the society feel no safety , happiness , comfortable. For the rich people inflation also a problem but they still can handle it. But for the poor its a very big problem.
So the government have to give a financial support to the poor people and also foods and drinks supplies every week to recover the social welfare of the country. If there's no help from the government the country will be ruin.
If the inflation is keep rising and not stopping the poor people will be do a demonstration because they feel the government doesn't care about them and don't want to give any support. If there's a demonstration the government will be going to spend more money due to broken facilities that are did by the poor people , so the government have to act immediately if there's an inflation.
The conclusion is the government have to help the poor people if there's an inflation. Otherwise the social welfare will be going bad and the people will feel the government doesn't care to its country due to no action from the government
CORRECTION
Part 1 (I think I write too much and I have to divide it into 2 parts)
ReplyDeleteInflation is a term explaining a situation of a market, where general prices are increasing in both goods and services. Inflation is one of four government’s macro-economic aims to make it low and stable as possible. Export is an activity that includes selling goods or services to another country while Import is an activity that includes buying goods or services in to the country.
Inflation may happen due to unbalance of international trade where export is more creating problem of aggregate supply is less than aggregate demand. Also imported inflation where imports cost more and export worth less due to reduces in money value because printing of money or due to too much import than export. For example, a country that is an exporter of rice, Indonesia, export too much rice to the international market the supply of rice in the country will be less. It means prices of rice in Indonesia are likely to increase or we can say the word, inflation if there are no balances between export and import or supply with demand in the country.
Inflation may affect economic sectors, in export and import either for government or from producers. For government, inflation might affect the cost of import because the value of money decreased and then the government can only import less to reduce or prevent imported inflation. Therefore demand on the imported goods increased and started another kind of inflation which the price of imported goods increases in the market due to less supply.
To producers, they’re going to have hard time on exporting. As of inflation cost of raw materials increases creating producers to produce less and reduce productivity then their export will be reduced. Due to government’s way to reduce inflation by increasing the tax of export so producers will export less and increase the supply in the country. Then the producers will gain less income and having less profit because value of money in the country is reduced in the international market.
Also, as of limitation of export due to inflation producers tend to reduce workforce to outcome the losses or small profit they produced. That means unemployment is increasing rapidly because some company or international company may move to another country to minimize their cost and losses. A stable country will attract more established company than a country that has hyperinflation or inflation like Zimbabwe.
By this point, government’s second aim which is reducing unemployment will be fail and they must make welfare payments to provide them finance. This means public expenditure of government increased and then they can’t pay wages, or they can’t do subsidies, or create roads, or even payments for health care and educations. Then they must borrow from international bank, creating international loan where currency will once again fall.
Again, citizens are also going affected because the country will fail as more and more people being in poverty due to inflation and money currency of the country. Then they can’t buy goods to fulfill their needs and began starving and eventually criminality increases like in South Africa where poverty began to create starvation.
Part 2
DeleteSo, we can say that inflation affect export and import in a lot of aspect. Government, producer, and even citizens are being affected along. This mean the government must do actions before the inflation increases to a really high level. Currency of money being less in the international market create problems to all sides means that it is one of the biggest problem of inflation in the country as everything start to rise up, prices of imports and demand. Then producers are going to move to another country due to taxes or even cost and going to remove employees which later on unemployment happened and government must do more public expenditure to reduce the poverty in the country and then public expenditure will go more than public revenue and they will take a loan in the international bank and again the currency of money will fall which later on leads to the fail of a country. This is why export import inflation affects a lot in most countries. In Indonesia, value of rupiah is being less in the international market creating prices of import increased. Even though Indonesia is a rice exporter, the government still imports rice from Thailand which is one of the reason value of rupiah fall, as import too much things.
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. First reason is Demand Pull inflation, this condition happen when Aggregate demand is greater than Aggregate Supply. Second, Cost push inflation, because the cost of production increasing such as wages and raw material, inflation happen. There are still other reason that causing inflation.
ReplyDeleteGenerally, inflation can bring many effect, from the positive until negative. It can affect everyone such as society, household, government, export import, firms, etc.
From the household side, if inflation happen, it means the price for all / selected goods and services increasing. E.g. Household expenditure, we buy grocery goods annually, because we need it. If inflation happen, the prices are increasing, if the prices is very high,we will consider about it, so we can sort whether it is important or not, the translation is, we can reduce the expenditure because we won’t buy the unimportant goods. We also can manage our payment wisely so our disposable income can be stable or even rise.
But, if we see widely, Inflation brings many bad effect to the household, such as, the disposable income of a person will decreasing, whereas all the prices of goods and services is increasing. If they want their money become stable, they need more/higher disposable income. In fact, their disposable income decrease, and their expenditure rising, so this inflation become disadvantages especially to the poor person, who lives barely fit day by day. They might can’t afford their daily payment, usually if they have to bear the family.
Second, because the household expenditure increasing. Some people prefer to do less spending and do more saving, because they wait the inflation to end soon. It will bring effect to the firms/ grocery company because their sales will decreasing. Also, the rest of the people prefer to do more spending, because they believe the inflation will keep rising, so they do more spending in this case because they are unwilling to buy the goods and services if the prices rising more, meant for this people, if the inflation stop, they will lose their money they have been used before when inflation happen because they buy the goods and services far from the normal price and suddenly the inflation stop and the price already back to normal.
Third, if inflation happens so does the interest rate of a bank. If bank rise their interest rate, people will do less borrowing because of the high interest and especially for the poor people who need it for real they can’t do borrowing because of the high interest rate because they might can’t repay the interest rate.
Also for the people who save of lend money, if the interest rate they received on the money they have saved or loaned is lower than rate of inflation, their value of money will fall. In contrast people who have borrowed money will benefit by repaying less than the amount they were originally loaned
The conclusion is Inflation bring more bad effect to the household rather than the positive effect. So no wonder, inflation become a big trouble to the country . Also government play more active role in inflation to achieve low and stable inflation as their objectives.
Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services and inflation is also decreasing in the purchases power of money. We can measure the inflation by calculated the change in percentage in a general price index of the customers over time. Inflation also has positive and negative impact on an economy. Inflation can effects firm, household, export and import, government and social welfare in that country. Usually inflation became a big problem in many countries.
ReplyDeleteThe negative effect of inflation to social welfare is the number of unemployment increase because the company has higher overhead during the inflation such as the company should pay more to the material and the company should make profit for the business. And the manager of the company will fire their employee and the number of unemployment will increase. It’s mean the social welfare of the society will decrease because they don’t have jobs and their income will reduce and they can’t satisfy their family’s need. The inflation also can effect to the psychology of their children. Because their parents don’t have fixed jobs and they also don’t have enough money to satisfy their family so the level of fighting in their family will increase and it effects to the welfare of the children.
But inflation has the positive impact to the social welfare. If the people have a job that effected by inflation that make the demand of their business increase. For example one family has a photocopy business and there is inflation in their country that make the demand of photocopy increase because people need photocopy their document. The owner of the business wants increase the price of photocopy from $ 2 each become $ 5 each. The society inevitably will pay even the price increase. When this situation occur the income of the family will increase and they can satisfy their needs and wants. Or the family has enough money to lend their money to the society that can’t borrow money from bank because they should pay more interest during the inflation. The benefit for the family they can get more money if they lend their money because the society will pay interest and the social welfare in their country will increase.
So inflation can give beneficial to the society, when they have more money and the inflation occur in their country they can learn to save their money to satisfy their wants and needs also to survive during the inflation occur in their country. The inflation can give the positive effect to the social welfare during the inflation when they have a business that effecting by the inflation and makes the demand of the business increase so they can increase the price of goods that they sale. If they can survive during the inflation they can increase the welfare of their family and they can help each other and the social welfare in their country will increase during the inflation.