Download HOW DOES INFLATION AFFECT THE ECONOMY

HOW DOES INFLATION AFFECT THE ECONOMY?
KIMBERLY SMITH
MACROECONOMICS
DENNIS WILSON
How does inflation affect the Economy? The Economic system of the country relies on
the value of money they use to stay the same. If the money you have becomes worth less, in
terms of the goods and services you are able to purchase with it, you would need to arrange
your budget accordingly.
Inflation affects the economy so much because economies are organized based on the
value of currency, both within and outside of the country. Inflation affects the rich and the poor
and it poses a threat to the economy. Whenever, money supply exceeds the demand for
money, inflation results.
Inflation can have a severe impact on retired people who live on fixed incomes. A small
increase in price level could be beneficial to the economy. You will need to save more now to
pay higher prices in the future. In an inflation-affected economy, retirement planning is nearly
impossible because the premium you pay would have to be high if you want to keep the same
quality of life.
There are some interesting points in an article titled How Does Inflation Impact My Life
from author Kimberly Amadeo, About.com Us Economy and she stated, “That once people
start to expect inflation, they will spend now rather than later.” In doing that the consumer
spending heats up the economy, leading to more inflation.
Inflation can affect so many things from retirement, treasury bonds, and investments
and also in general your standard of living. Inflation does not though affect everything equally.
It was interesting to read that after the World War I, the German government lowered
the value of their currency by printing massive amount of notes. And to buy a loaf of bread one
had to spend a huge amount. Due to the present downward trends in the world economies it
has now resulted in credit crunch and financial crisis.
Inflation affects us everyday when we go to the grocery store and find that a hundred
dollars won’t get you the same amount as it did last year. This also affects the gas prices that
are hurting the nation right now. Inflation not only affects you, but the economy as a whole.
Inflation is a part of life. The economy will always experience ups and downs. Some
years will be bad and some will be good. I believe people need to be educated on how to
improve they way they live and spend so that they can not only survive, but also thrive during
these hard times.
Budgeting would be the first step in the combat towards inflation. It will cut down on
loose and overspending. This would only be the first step, but it is definitely a start to help in
the process of surviving during inflation.
The problem can be from lower wages and not enough jobs. In an article from the USA
Today, 2012 it stated that “wages aren’t rising fast enough to keep up with inflation.” I have
experienced that myself with my current job and trying to make ends meet with the wages that
I earn. It is tough this day and age with prices higher and not earning enough to pay those
prices. Hopefully that with the additional hiring, it will boost confidence and spur more
spending.
Also in the same article it said that “the government said US wholesale prices were flat
in March after a drop in energy prices offset rising costs for food and pickup trucks. The figures
suggest that modest growth isn’t spurring inflation.” So inflation was otherwise tame.
I believe we as Americans should get educated and informed to start improving things
so that inflation does not worsen which could cause more problems. One thing is to reconsider
investment decisions. As inflation increases, it is better to invest in equities, and as interest
rates go up, it is better to invest in properties.
We can all do our part to help improve the economy and our standard of living. I
believe things can and will get better for everyone. Education is the key, we just need to put
forth the effort to get informed.
REFERENCES
USA TODAY, 2012 - Article “Economy growing, inflation tame, hiring still weak
About.com US Economy, Author-Kimberly Amadeo, Article-“How Does Inflation Impact my Life”
Bank Bazaar.com, Article “How does inflation affect you?”, November 4,2011