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Growth rates and inflation rate - Essay Example
Finance & Accounting
Pages 3 (753 words)
19th November 2013 Growth rates and the inflation rate As the global economy improves based on the increased demand for products as a result of increase in population, many countries have taken initiatives to curb inflation that can have negative implications on the purchasing power of the consumers…
On the other hand, growth rates indicate the size of the economy as a result government strategies such as creation of employment, increasing the level of investment, maintaining minimum wage, reducing interest rates and creating competition among other policies. This paper aims at discussing the relationship that exists between the growth rates and the inflation rates. Impacts of inflation Increase in prices of commodities result into reduced purchasing power. This implies that each monetary unit buys fewer products. It is vital to note that the impacts of inflation are not uniformly distributed but they are benefits to some while at the same time they are hidden costs to majority of consumers. For instance, during inflation, the prices of physical assets increase thus making the owners to enjoy increased value of their assets (Auernheimer 25). But on the other hand, individuals who are willing to purchase the assets will pay more. Another impact of inflation is that it results to erosion of real value of money. For example, when inflation increases, the real interests rates increases making it difficult for local and foreign investors to borrow from local banks. An increase in economic growth results to an increase in the level of inflation and likewise a decrease in growth results to low level of inflation. ...
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