The Influence of Inflation on Economic Development
INTRODUCTION AND THESIS STATEMENT
Inflation, as defined in the English dictionary, is “a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency, which is usually measured by the Consumer Price Index (CPI)”. In the context of market economy, prices are showing the application so it can be said that inflation is caused by a “mismatch” between aggregate demand and aggregate supply, signaling economic imbalance. However, in its complexity, inflation is a monetary imbalance caused by increasing the amount of money in the economy and hence the declining purchasing power of the currency. Ludwig von Mises explained the phenomenon using the example of the situation in the economies of European countries in the 16th century, when there was a penetration of large amounts of precious metals (gold, silver, etc.) from U.S., determining the amount of money and also the prices in Europe to increase. Similar to that, when a government increases the quantity of paper money, it results in a decrease of the purchasing power, and increase in prices. Inflation has always been around, and it has always been rising, but experts have different opinions on how it is going to affect the economic development.
DEFINITION OF INFLATION
Over the years, many economists have tried to define inflation, but none of them managed to fully capture the aspects of this complex phenomenon. It came to the conclusion that the inflation represented a major factor in economic problems. Summarizing the definitions of inflation, it is an imbalance characterized by a generalized increase in prices that comes from increased circulation of money, either due to the budget deficit or due to the excess of purchasing power of consumers in relation to the quantity of goods and services available to them. Therefore, it goes without saying that inflation is not just a monetary phenomenon, but one to which structural
Inflation, as defined in the English dictionary, is “a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency, which is usually measured by the Consumer Price Index (CPI)”. In the context of market economy, prices are showing the application so it can be said that inflation is caused by a “mismatch” between aggregate demand and aggregate supply, signaling economic imbalance. However, in its complexity, inflation is a monetary imbalance caused by increasing the amount of money in the economy and hence the declining purchasing power of the currency. Ludwig von Mises explained the phenomenon using the example of the situation in the economies of European countries in the 16th century, when there was a penetration of large amounts of precious metals (gold, silver, etc.) from U.S., determining the amount of money and also the prices in Europe to increase. Similar to that, when a government increases the quantity of paper money, it results in a decrease of the purchasing power, and increase in prices. Inflation has always been around, and it has always been rising, but experts have different opinions on how it is going to affect the economic development.
DEFINITION OF INFLATION
Over the years, many economists have tried to define inflation, but none of them managed to fully capture the aspects of this complex phenomenon. It came to the conclusion that the inflation represented a major factor in economic problems. Summarizing the definitions of inflation, it is an imbalance characterized by a generalized increase in prices that comes from increased circulation of money, either due to the budget deficit or due to the excess of purchasing power of consumers in relation to the quantity of goods and services available to them. Therefore, it goes without saying that inflation is not just a monetary phenomenon, but one to which structural