Essay Inflation Has Increased the Wealth Gap

Topics: Inflation, Economic inequality, Distribution of wealth Pages: 4 (1107 words) Published: February 5, 2013
Student Name: Li, Bo(Kevin)
Student No.: 1155023825

Inflation increases the wealth gap

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index or the GDP deflator) over time. [1] Inflation has a range of impact on the economy and social-economic factors, such as employment, consumption, investment, wages and prices. In this essay, let’s focus on the impact on wealth gap. Today, almost all countries have central bank, which is responsible of printing their own countries’ currency, in other words, each country has their own currency system. The so-called inflation, from a technical sense, that is, the central bank issued too much money, too much currency in circulation in the economies, which caused the value of money to drop, or we could say the growth of money eroded the purchasing power of people. This theory is what we called the quantity theory of money in economics.   Since everyone can not be separated from the currency, the central bank once issued too much money. It will inevitably lead to a serious and widespread problem. One of them is the currency devaluation: if there are too many supplies of one thing, of course, the price in the market will drop. The most serious consequences of the relative changes in the price are the negative impact on people’s wealth redistribution – the rich people get richer, and the poor gets poorer, in other words, the wealth gap in the society is enlarged due to inflation. Inflation causes negative impact on...
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