Inflation is a rise in the general level of prices for goods and services in the macroeconomics. (McConnell et al, 2012) It reduces the “purchasing power” of money. Inflation occurs when the demand and supply of money is imbalance, which cause the changes in production and distribution costs or increase in taxes on products. (The Economic Times, 2013)
Inflation is a rise in the general level of prices for goods and services in the macroeconomics. (McConnell et al, 2012) It reduces the “purchasing power” of money. Inflation occurs when the demand and supply of money is imbalance, which cause the changes in production and distribution costs or increase in taxes on products. (The Economic Times, 2013)
In turn, inflation does not mean that all the prices for the goods and services are rising. Sometimes, prices may be relatively constant and others may even fall during the period of rapid inflation. (McConnell et al, 2012) This is because when the prices fall, the average may fall also, resulting in negative inflation, which is known as deflation. (Cliffe, 2013) In this case, central banks attempt to keep the excessive growth of prices to minimum, as to stop the severe inflation and deflation. (Investopedia, 2013)
Sometimes, falling of inflation does not mean that falling in prices. According to the BBC news, there was a steep drop in inflation from 5% to 1% over the year in United Kingdom. (BBC News, 2013) Inflation is falling, but the rate of inflation remained positive, which means that the prices were rising but at a slower rate. A slowdown in inflation is different as deflation. For this to happen, inflation would have to be negative.
Thus, the government tries to control the inflation. If we do not talk about the negative effects, a moderate level of inflation characterizes a good economy. Actually, moderate inflation rate is good for economic growth. An inflation rate of 2 or 3% is good for an economy because it encourages people to buy more and borrow more. It is because during the times of low inflation, the level of interest rate also remains low. Hence the government and the central bank always strive to achieve a limited level of inflation. (The Economic Times, 2013)
Reason of Our Selection
In turn, inflation does not mean that all the prices for the goods and services are rising. Sometimes, prices may be relatively constant and others may even fall during the period of rapid inflation. (McConnell et al, 2012) This is because when the prices fall, the average may fall also, resulting in negative inflation, which is known as deflation. (Cliffe, 2013) In this case, central banks attempt to keep the excessive growth of prices to minimum, as to stop the severe inflation and deflation. (Investopedia, 2013)
Sometimes, falling of inflation does not mean that falling in prices. According to the BBC news, there was a steep drop in inflation from 5% to 1% over the year in United Kingdom. (BBC News, 2013) Inflation is falling, but the rate of inflation remained positive, which means that the prices were rising but at a slower rate. A slowdown in inflation is different as deflation. For this to happen, inflation would have to be negative.
Sometimes, falling of inflation does not mean that falling in prices. According to the BBC news, there was a steep drop in inflation from 5% to 1% over the year in United Kingdom. (BBC News, 2013) Inflation is falling, but the rate of inflation remained positive, which means that the prices were rising but at a slower rate. A slowdown in inflation is different as deflation. For this to happen, inflation would have to be negative.
Thus, the government tries to control the inflation. If we do not talk about the negative effects, a moderate level of inflation characterizes a good economy. Actually, moderate inflation rate is good for economic growth. An inflation rate of 2 or 3% is good for an economy because it encourages people to buy more and borrow more. It is because during the times of low inflation, the level of interest rate also remains low. Hence the government and the central bank always strive to achieve a limited level of inflation. (The Economic Times, 2013)
Reason of Our Selection
The reason that we chose inflation as the topic is it reflects on every one of us in the world. We are the consumers. Consumers are the one who have the worst impact when inflation occurs. Higher price of goods and services make it difficult for the consumers to afford the basic commodities in life. They have no choice to change the fact and they ask for a higher income because their wages do not change although the rate of inflation has changed. Besides, once people start to expect inflation, they will spend now rather than later because they know that the things will cost more later. When consumer spending increases, inflation continues to build. Consumer spending will crash when the job killing effect attached to inflation. As inflation increases, the value of investments decreases.
This spending will be heating up the economy even more and leads to more inflation until it is out of control. Businesses will be cutting down the staffs. Without income, the unemployed individuals are forced to spend less. In fact, the consensus view is that a continuous of long period of inflation is caused by money supply growing faster than the rate of economic growth. (ForexMetrics, 2013)
With the issues stated above, our
Goals to achieve is:
Why is inflation occurs?
How inflation affect consumer purchasing power?
Limitations
Conducting a research neither easy nor hard. This research tells exactly what was done and where the information came from. The information includes the theories and facts about macroeconomics. The reliability of the data from the online sources was one of the limitations. As we know, it is quite difficult for us to know that the online information is true or not. Sometimes, the information that we search online may not be well structured. As a result, we have to ensure that the data that we obtained is well-organised and making people to understand well. Every assignment includes limitations of the materials being researched. Thus, despite the limitations, the research was done successfully in helping to complete the assignment.
The reason that we chose inflation as the topic is it reflects on every one of us in the world. We are the consumers. Consumers are the one who have the worst impact when inflation occurs. Higher price of goods and services make it difficult for the consumers to afford the basic commodities in life. They have no choice to change the fact and they ask for a higher income because their wages do not change although the rate of inflation has changed. Besides, once people start to expect inflation, they will spend now rather than later because they know that the things will cost more later. When consumer spending increases, inflation continues to build. Consumer spending will crash when the job killing effect attached to inflation. As inflation increases, the value of investments decreases.
This spending will be heating up the economy even more and leads to more inflation until it is out of control. Businesses will be cutting down the staffs. Without income, the unemployed individuals are forced to spend less. In fact, the consensus view is that a continuous of long period of inflation is caused by money supply growing faster than the rate of economic growth. (ForexMetrics, 2013)
With the issues stated above, our
Goals to achieve is:
Why is inflation occurs?
What factors affect the inflation rates?
How to calculate inflation rate?
What are the effects of inflation?
How government control the inflation?
How inflation affect consumer purchasing power?
How inflation affect consumer purchasing power?
Limitations
Conducting a research neither easy nor hard. This research tells exactly what was done and where the information came from. The information includes the theories and facts about macroeconomics. The reliability of the data from the online sources was one of the limitations. As we know, it is quite difficult for us to know that the online information is true or not. Sometimes, the information that we search online may not be well structured. As a result, we have to ensure that the data that we obtained is well-organised and making people to understand well. Every assignment includes limitations of the materials being researched. Thus, despite the limitations, the research was done successfully in helping to complete the assignment. 
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