2018-02-13
980
Socio-economic effects of inflation are very deep.Around the world, perhaps,can not find a country that would not "ill" this serious disease.
Thus, the socio-economic effects of inflation are as follows.
1. It destroys the usual economic ties.The economy intensified confusion and imbalances. Undermines investment process, since the uncontrollable price increase profit, is the goal of production, can be obtained without its extension.
2. Socio-economic effects of inflation and the impact on the functioning of the monetary system. Banknotes impaired, people lose the incentive to their accumulation. And entrepreneurs, and ordinary citizens prefer to invest in real estate and the acquisition of various goods. Credit also has to break the contract, as in the new conditions of their unprofitable to give a little interest in the long term. In this case, the debt will be refunded the money that already have time to depreciate.
3. Also, inflation does not contribute to the development of foreign economic relations of the country. Domestic products are losing competitiveness, they are difficult to export. But the import of goods, on the contrary, increased, as in the domestic market, they have higher rates. Inflation hinders flow of foreign capital into the country. The depreciation of the national currency leads to a decrease in its market and the official exchange rate.
4. Inflation leads to a drop in the living standards of the population. This is especially true of those who had previously had a stable income, since its growth rate did not keep pace with rising prices for goods and services.
5. Inflation devalues those monetary savings that people had once invested in banks, insurance policies. The same happens with other paper assets, which have a fixed cost.
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All the above economic and social impact of inflation and the impact of how to behave market actors. Most likely, they will lose confidence and to each other and to the state. This, in turn, will increase and economic instability in society.
Why does the government regulate the economy?
In today’s world governments get involved in the economy in certain ways and leaders must often make economic decisions.
A government must make sure that there is enough competition to keep prices low the quality products high. If only a few companies produce products they may agree to keep prices high. In a monopoly, only one company produces goods and services that everybody needs, so it can set the price.
In the second half of the 19th century companies started to get bigger and bigger by taking over smaller ones. Soon these so-called trusts had a lot of power and controlled the market and the prices. At the beginning of the 20th century the United States passed a law which helped smaller companies survive.
Business leaders often do not care about what their decisions may do to our society. For example, a factory may pollute a river by pouring dirty water into it. It is the job of government organizations to make sure that this does not happen.
The state of economy is not the same all the time. Normally, there are always ups and downs. Sometimes the economy of a country is in good condition, everybody has enough money and lots of goods are produced. On the other side there may be years in which there are a lot of unemployed people and factories cannot sell their products. The business cycle shows the economy in four phases.
What are the money aggregates and explain each aggregate?
Money supply aggregates-Money supply is the sum of cash, clearing money that is used in the national economy to provide the circulation of goods and services. Product quantity=amount of supplied money.Money supply aggregates consists of the following elements:
M0- money in cash of people and enterprises
M1- M0+ short term deposits of the people and the enterprises
M2- M1+ long term deposits of the people
M3-M2+ government bonds
