Money and Inflation

Topics: United States dollar, Central bank, Monetary policy Pages: 2 (574 words) Published: October 8, 1999
Money and Inflation

The nation's economic stability has many factors which amount to inflation. Inflation may be caused by a number of problems, but there are some specific examples which have direct control over which way the prices and spending sway. Inflation simply means that the American dollar, in this case, is less valuable on the foreign exchange market and the gold standard is moved to higher prices; which simply means that more currency is needed to exchange for gold.

Any slight change in investments or a company's cost premium could change the entire economy because of the domino effect acting on the rest of society. For an example, flooding in a particular region of the country could cause inflation. In the long run, the flooding may be catastrophic for businesses because it could cause a shortage of products. In order for the businesses to make up for any lost income, they must boost their prices and make the profit margins go up. The profit margins make up for the lost income and balance out that particular company, but everyone else must suffer the consequences. In the business world; the more they produce, the less they can sell for; the less they produce, the more they sell the product for.

Profit margins can have a direct impact on the consumer. The more an item cost, the less a consumer will want to purchase that particular good. Higher profit margins may be able to balance a company's budget, but unless their product is in very high demand, most people will want to buy the product. The lack of people purchasing the item may cause the company to lose money and have no alternative other than to lay off workers. People out of work means that less consuming will take place, meaning that other businesses will hurt due to the lack of sales, perhaps causing those other businesses to move up their own profit margin, in turn creating the same cycle at a faster rate.

With businesses under, the unemployment rate...
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