Essay about Exploring the Causes and Effects of Inflation

A balloon is flat and small when there is no air inside of it. When air is blown into the balloon, it starts to grow in size and grow bigger and bigger until it reaches its limits. Inflation in some ways is similar to the balloon. It will continue to grow and will not stop until something is done to stop it. Inflation can cause great harm to an economy, especially during a recession. What is inflation, what are some of the causes and effects of inflation and what can be done to prevent it? These are just some of the questions that surround this topic. First off, what exactly is inflation? Inflation is simply an increase in the general price level of goods and services. For example, if the inflation rate is†¦show more content†¦With the increase in German Deutsche mark, the value of the currency was basically dropped to near zero. Stagflation is simply inflation combined together with stagnation, a period of slow growth in the economy. This is one of the worst positions an economy can find it in and it can result in increased unemployment. So inflation is very harmful to an economy, regardless of the type. Next, how can inflation be measured? First of all, it can be measured by simply looking at the CPI(consumer price index) and figuring out the percentage change from one year to another. So if in one year the price index is 104.1 and a year later the price index has risen to 112.5, then the annual rate of inflation = (112.5 – 104.1) divided by 104.1 x 100. Thus the rate of inflation = 8.07%.[3] Another was of measuring inflation is through the PPI(producer price index). The PPI is a tool that is used to measure average changes that producers of a country receive for their products. One difference between the CPI and PPI is that the PPI is free from the statistical â€Å"noise† that the CPI experiences.[4] Most investors use the CPI because it updates later than the PPI. In the long run both are similar in rates of inflation while in the short run the PPI updates more rapidly. Another way of measuring inflation is through core inflation. It does not includeShow MoreRelatedAustralia s Current Economic Climate1370 Words   |  6 Pagesable to accelerate its exports industry, making exports cheaper abroad, in turn increasing demand for their goods. This report will discuss the recent trends in Australia’s exchange rate, in addition to exploring factors that influence the exchange rate and its impact on the trade industry. The effects of a depreciating exchange rate overall benefit the Current Account and Balance of Payments. 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