Inflation Economics Essay Paper

Money Supply and Inflation Essay

1724 Words7 Pages

Money Supply plays an important role in macroeconomic analysis, especially in selecting an appropriate monetary and fiscal policy. Considerably, I am yet to come across theoretical work that has been done on this topic (analysis money supply and its impact on other variable i.e. inflation, interest rate, real GDP and nominal GDP). However some other topics similar to this one have been done by AL-SHARKAS, Adel, where he uses the same technique and models on the topic ‘out put response to shocks to interest rate, inflation and stock returns. His work investigates the relationship between the Jordanian output and other macroeconomics variables such as inflation, interest rate and stock returns. His paper employs the VAR approach method of…show more content…

Business firms response to increase in sales by ordering more raw materials and increasing production. The spread of business activities increases the demand for labour and raises the demand for capital goods. In a buoyant economy prices rise and firms issue equity and debt. It the Money Supply continues to expand prices begin to rise; especially it out put growth reaches capacity limits. As the public begins to expect inflation, lenders insist on higher interest rates to offset an expected decline in purchasing power over the life f their loans. Thus there is relationship money supply and inflation (other macroeconomic variables like interest rates, real GDP and nominal GDP) and therefore when there is shocks in the money supply it does affect the those variables( Gujarat basic econometrics 004 4th ed).

However, despite the importance of previous studies until now, the majority of research considers developed countries economies with regard to demand for money with out going further in to the relationship in less developed countries. This being the case the relationship in less developed, macroeconomic variables money supply and economic activity in developing countries still needs lengthy analysis and more research attention. The objective or purpose of this term paper is to show the

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The Effects of Inflation in Malaysian Economy Essay

645 Words3 Pages

Investment will drop because inflation. There may be greater uncertainty for both firms and households when inflation. Firms become unsure of what their costs will be and what prices they will receive from selling their products in the future so may be reluctant to invest. The good timing for company to grow their business is when the economic conditions is at low inflation (Inflation, n.d.). This is easy for businesses to have a well planning for their activities and investments. Most of the time, large companies’ investment planning can cover for the next few years (What is inflation and how should it affect my investing?, 2009). There will be less investment when high inflation because it will make the business costs rise faster than…show more content…

Investment will drop because inflation. There may be greater uncertainty for both firms and households when inflation. Firms become unsure of what their costs will be and what prices they will receive from selling their products in the future so may be reluctant to invest. The good timing for company to grow their business is when the economic conditions is at low inflation (Inflation, n.d.). This is easy for businesses to have a well planning for their activities and investments. Most of the time, large companies’ investment planning can cover for the next few years (What is inflation and how should it affect my investing?, 2009). There will be less investment when high inflation because it will make the business costs rise faster than the revenue that the company receive. When high inflation, it will bring many uncertainties into business planning, as the money value is changing means companies cannot ensure of their future costs or revenues. This will result in negative implications on the economic growth in the economy.
The consequence of inflation is people will expect prices to rise, then they will consume more to avoid higher costs. Because local trader will hide the stocks or take advantages in the situation that the oil price increase to increase the prices of good. Increase of crude oil price make Malaysia soared to a 26-years high inflation in year 2008, June (Lesova, 2008). In that time, the oil price has increased to USD 145 a barrel (Crude Oil Price History,

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