Increase in prices

College
Essay
Miscellaneous
Pages 4 (1004 words)
Download 0
A trend of rising prices or an increase in the general price level of an economy is known as inflation. It is also referred to as the sustained increase in the price level. The general perception is that inflation is a bad phenomenon and is detrimental to the growth of an economy…

Introduction


However inflation cannot always be termed as "bad" if seen in terms of higher money incomes. The higher prices of everything would result in higher receipts for resource suppliers and hence a growth in their income levels.
Inflation usually results in the standard of living to decline because it now costs more to buy the same amount of goods and services. However there are some cases where the rising prices do not necessarily mean declining living standards. Following are some of the factors:
Nominal Income: If the economy is suffering from a period of rising prices and at the same time there is a commensurate rise in the level of income, this would not lead to a decline in living standards. This is because the increase in prices is offset by the proportionate increase in income, resulting in an unchanged consumption pattern. This is assuming everything else is constant.
Real income: This is the income that is adjusted for inflation. In cases where the nominal income is rising but the rate at which it is growing is less than the inflation rate, it would not lead to a boost in the standard of living. This is because the inflation will erode the purchasing power of money and people will be spending the extra income in the purchasing of the same amount of goods and services. ...
Download paper
Not exactly what you need?

Related papers

Price Increase at Port Utopia hotels
This implies that the consumer understands the reason for the six hoteliers raising their accommodation prices. The issue of price increase is quite acceptable and there is no question of breaking any Trade and Consumer Protection Law because this law is applicable only where goods have been purchased or services provided. In the case of Port Utopia it will be difficult for any client of Port…
Macroeconomics-oil prices
The dependence of the economy on oil has reduced considerably with the strengthening of the IT and services sectors. Although the rise in prices of oil has been large it has not been sudden and the economies of the major economic powers have adjusted to the change. The rise in oil prices will definitely result in an across the board change in prices and thus inflation rates will continue to be…
Rising Oil Prices
Fuel prices have risen and affected every nation in the world since the early years of this decade. Nandia Mongia (2008) reports that crude oil prices have increased in the world market from 22 U.S. Dollars up to almost $90 U.S. Dollars per barrel. This affected the prices of petroleum products like diesel, kerosene, propane, and gasoline and hit lower-income households. Figure 1 shows the rising…
Increase in prices
However inflation cannot always be termed as "bad" if seen in terms of higher money incomes. The higher prices of everything would result in higher receipts for resource suppliers and hence a growth in their income levels.…
The Cause and Effect of Rising Oil Prices
Industries are forced to scale back production to keep costs in line. Worldwide inflationary pressures push prices higher around the globe. These actions and reactions fundamentally change the way the world works, plays and lives. The necessity of oil drives prices at the margins and the resulting shock pushes consumers and industry to scale back use, limit the demand, and create alternatives for…
Increase of Gas Prices
Since last decade, gasoline prices have increased due to a number of factors that have contributed to its increment in the world market. In this regard, experts and economists have identified a number of factors that have contributed to the high prices of gasoline around the globe. Refining capacity has been identified as the biggest identified factor for the high prices of gas. Even if economical…
Impact of Oil Prices on the US Economy
Although the rise in prices of oil has been large it has not been sudden and the economies of the major economic powers have adjusted to the change. The rise in oil prices will definitely result in an across the board change in prices and thus inflation rates will continue to be high. However the likelihood of this leading to a recession in the US and other large economies of the world is remote.…