Effects Of Inflation

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Effects Of Inflation
Joe Bardawil
Notre Dame University – Louize
January 15th, 2014

Outline
Economic Crisis and Inflation
Thesis statement: Economic crisis and inflation will lead to recession in macroeconomics aspect of a country, deterioration of the monetary value of the currency, and reduction of the purchasing power

I. Recession in macroeconomics aspect of a country
A. Definition of recession in macroeconomics
B. The effect of inflation on the recession
C. Possible solution

II. Deterioration of the monetary value of the currency
A. Nominal versus real value of the currency
B. Relationship between the inflation and the monetary value
C. The result of the inflation on the exchange rate

III. Reduction of the purchasing power
A. Definition of purchasing power
B. Consequence of inflation on the purchasing power
C. Social cost of inflation

In 1950, cars roughly cost $1,480, the average price of apartments was around $15,796, and the median yearly salary of a worker was $2,686. Let us take a look at the prices of these products today. Currently, cars cost $13,448, the average price of an apartment is around $143,530, and the median yearly salary is $24,406 1. This increase in the general prices of all goods and services is known as inflation. The percentage change prices is also known as the rate of inflation, varies over time and across countries. However, it carries the same end result to any country with inflation. Hyperinflation is when the rate of inflation rises rapidly and out of control which usually leads the concerned country to enter a quite problematic state. Keeping the inflation rate low has been the primary goal of government policies in order...

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...lation exists, it will cost more currency units to buy the same amount of goods and services. When the purchasing power decreases, the concerned country will enter into a weaker economic state.
With deterioration of the purchasing power, it will cause social and economic costs. People will tend to cut out on any leisure and luxury spending and will save money. This will lead to a lower standard of living.

In conclusion, almost all the countries have underestimated inflation and they have fallen under its negative effects. Economists usually assume all the variables when they study any aspect of the country, hopefully next time they make all necessary assumptions to avoid inflation. As stated above, inflation will lead to a recession in the macroeconomic aspects of a country, deterioration of the monetary value of the currency, and reduction of the purchasing power.

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