Money And Inflation

Sample essay topic, essay writing: Money And Inflation - 534 words

Money and InflationThe nation's economic stability has many factors which amount to inflation. Inflation may be caused by a number of problems, but there are some specificexamples which have direct control over which way the prices and spending sway. Inflation simply means that the American dollar, in this case, is less valuableon the foreign exchange market and the gold standard is moved to higher prices;which simply means that more currency is needed to exchange for gold. Any slight change in investments or a company's cost premium could changethe entire economy because of the domino effect acting on the rest of society. For an example, flooding in a particular region of the country could causeinflation. In the long run, the flooding may be catastrophic for businessesbecause it could cause a shortage of products. In order for the businesses tomake up for any lost income, they must boost their prices and make the profitmargins go up. The profit margins make up for the lost income and balance outthat particular company, but everyone else must suffer the consequences. In thebusiness world; the more they produce, the less they can sell for; the less theyproduce, the more they sell the product for. Profit margins can have a direct impact on the consumer.

The more an itemcost, the less a consumer will want to purchase that particular good. Higherprofit margins may be able to balance a company's budget, but unless theirproduct is in very high demand, most people will want to buy the product. Thelack of people purchasing the item may cause the company to lose money and haveno alternative other than to lay off workers. People out of work means thatless consuming will take place, meaning that other businesses will hurt due tothe lack of sales, perhaps causing those other businesses to move up their ownprofit margin, in turn creating the same cycle at a faster rate. With businesses under, the unemployment rate would be phenomenal. Peoplewould be seeking government assistance while the government itself is so far indebt and tied up in credit. The government assistance would add to the alreadyhuge problem of the federal government spending more than it has

The result ofall the hand outs would cause an enormous dent on the federal deficit. Thedeficit is already bad enough, but in a case like this, the government would tryto do something to prevent a long recession. The Federal Reserve bank tries to balance the economy out by influencingother banks to print up more money to make up for the losses. This may stop theship from sinking all the way, but this decreases the value of the dollarbecause of the excessive amount of money in circulation. The dollar is lessvaluable on our own market, so prices rise. The dollar is also less valuable onthe foreign market which means that it takes more money to equal a yen, mark, orpound.

Also, the value of an ounce of gold is worth less due to the goldstandard, which lets gold be redeemed for dollars. Inflation has occurred andvalue of the dollar has decreased. If most people wouldn't panic and just staycalm, less stress would be spread, making the entire economic industry a saferand easier thing to live with.

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