Inflation Impact on Economy

Topics: Economics, Inflation, Money Pages: 2 (766 words) Published: June 21, 2013
Inflation Impact on Economy
Inflation means a rise in prices of goods and services in an economy over a period of time. Inflation is caused by some demand side factors (Increase in money supply, Increase in  income,  Black money spending, Expansion of the Private Sector, Increasing Public Expenditures) and some Supply side factors (Shortage of factors of production, Industrial Disputes, Increase in exports (excess exports), Global factors, Neglecting the production of consumer goods). Inflation effects the different sectors of the economy (Effects on the distribution of income and wealth, Effects on production, Effects on the Government, Effects on the Balance of Payment, Effects on Monetary Policy, Effects on Social Sector, Effects on Political environment) and different classes of the people (Debtors & Creditors, Salaried Class, Wages earners, Fixed income group, Investors and shareholders, Businessmen, Agriculturists). There are many causes for inflation, depending on a number of factors. For example, inflation can happen when governments print an excess of money to deal with a crisis. When any extra money is created, it will increase some societal group’s buying power. All sectors in the economy try to buy more than the economy can produce. Shortages are then created and merchants lose business. In the end, the price level rises. Another common reason of inflation is a rise in production costs, which leads to an increase in the price of the final product. For example, if raw materials increase in price, this leads to the cost of production increasing, this in turn leads to the company increasing prices to maintain their profits. Inflation can also be caused by federal taxes put on consumer products. As the taxes rise, suppliers often pass on the burden to the consumer. In Pakistan, the most important thing is the rise in prices of oil, gas, excise duties and the increase in the utility tariffs. These all has an inflationary impact on the economy....
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