ESSAY ON "INFLATION: ITS CAUSES AND EFFECTS"
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| Exploring the Economics of Inflation: A Comprehensive Essay on Its Causes and Effects 📈💡 |
A collective increase in the supply of money, in money incomes, or in prices refers to inflation. Inflation is generally thought of as an undue rise in the general level of prices.
It can be stated as;
“Inflation is a situation whereby there is a continuous and persistent rise in the general price level”.
The major cause of the increase in the price level is an increase in money supply. It may be due to increase in currency or credit money. An increase in the stock of money induces people to demand more and more goods and services. According to the Fisher’s Quantity Theory of Money, if there is an increase in the velocity of circulation of money it also leads to inflation. Investments also play an important role in producing inflation. At the moment of investment the economy’s stock of wealth and money expands and it results in inflation. Government of Pakistan has to make a lot of non-productive expenditures like defense etc. Such unproductive expenditures lead to the wastage of economy’s precious resources and also lead to inflation. Corruption and black money leads to increase in aggregate demand, which is cause of inflation. These evils increase aggregate demand and import volume. Deficit financing is another cause of inflation. It increases the money supply and leads to inflation. Foreign aids are also a source of mobilization of resources form rich countries to poor countries. It is also a cause of inflation in Pakistan. Population of Pakistan is increasing day by day. Increasing population is demanding more and it creates inflation.
There are few are GOOD EFFECTS of inflation, if rate is 2% to 4%; There is increase in production due to inflation. Inflation increases the employment opportunities in the country. Inflation enhances the process of economic development. There is more investment in country at the time of inflation. Inflation increases the economic activities that may cause to inventions and innovations.
Whereas the BAD EFFECTS of inflation are; It is a huge problem for employees, taking fixed salaries. Inflation reduces the living standard and purchasing power of people. Inflation reduces the saving of the population. It is a cause of unfavorable balance of trade and payment. Inflation increases the rate of interest.
Conclusion:
Inflation is everywhere in an economy. Its rate is high in developing countries and is low in poor developed counties. Effective operation of monetary and fiscal policy is essential to control the inflation.
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