Understanding Inflation And Its Consequences.

Inflation is related to rising in the amount of goods and services constantly and fall in the purchasing power of the currency. Rise in the level of inflation can be good and can be bad for someone and it all depends on the viewpoint of the person. Rise in the prices of assets due to inflation can be a good thing for some people and fall of the currency can be a bad thing for a person who is dealing in cash transactions. Views can be different but the rise is constant in both the scenes. Rising inflation level has decreased the purchasing power of people and mainly middle class and the lower class people are most affected by the rise in inflation level in an economy. Measures have been taken by the bodies to control it but it is increasing with every day passing.

What consequences are we facing –

  • Mainly service class people and lower class people are dealing with this issue because the rise in the price of daily use items has increased which are affecting there monthly expenses.
  • People are finding it more difficult to go for a holiday to some other nation due to fall in the price of currency.
  • Low investment due to high prices is hindering economic development. Many businesses have come down due to high prices of materials.
  • The lending rate of banks are getting higher and people are finding it difficult to repay it back.
  • Unemployment is increased due to high inflation rates because organisations will find it difficult to afford any individual.
  • There is no such increase in the per capita income of the people.
  • Savings of the people are getting used up and it is becoming more difficult to survive.
  • Increase in the inflation rate impose some hidden taxes on us like if we purchase something we have to pay more taxes due to rise in the price of that commodity.
  • Nation’s exports are getting more expensive and it is affecting the balance of trade of the nation.

Although there are several measures taken by the government to stop this inflation rate but this is not slowing down even after using many fiscal policies and many other strategies. The consequences that we are facing today will become even worse in the coming future if no other big decisions are taken to slow it down. A complete analysis of everything should be done to know where we can do the cost cutting and use that money for our economic development. Rise in the per capita income, lowering the interest rate of banks so that people are more attracted to take personal na business loans, creating more job opportunities, allocating more resources towards people’s welfare will bring a little change in this picture and it will definitely help in the economic development of the nation. These problems are most common in underdeveloped countries and in the developing countries. Most of the developed countries are always prepared for all these kinds of situations. 

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Types Of Economies

Economy is made up by resourceful allocation of all goods and services in a community which will further help a nation in economic development. Economic structure comprises of different patterns of consumption, decision making processes, agencies, institutions, entities to help all communities. Basically economy is divided into three basic types which are – Market Economy, Mixed Economy and Planned Economy. Traditionally all the comparisons and analysis of economic systems were made on the basis of Market economy and Planned Economy and major distinctions were between capitalism and socialism but now most of the countries are based on mixed economy. Now we are going to discuss about the three major types of economies in brief to understand it a little better.

Market Economy

Market economy is a system where all the decisions regarding investment, production and distribution in the market are taken by looking at the market forces of demand and supply. Price of a commodity relies on the demand and supply of that commodity, these two forces need to meet at an equilibrium price for any particular service and goods in order to form the perfect price for that commodity. There is a government intervention in this free market system whenever government feels to avoid certain behaviors in the market by applying price ceilings in the market for products or by using fiscal policy. Allocation and distribution of all the resources are done by analysing the forces of demand and supply in a Market Economy.

Planned Economy

Totally different from market economy planned Economy basically is an economy where most or all the production, distribution and allocation of goods and services are decided by the government. There is no such decision making power in the hands of business owners and private citizens like they have in the market economy. Planned economy has a less chance of inequality and low level of unemployment. The government here decide the prices of goods and services making it equal for the people of society. However you can see that these economies has a low efficiency of work.

Mixed Economy

Mixed economy is an economy where both private enterprises and government coexist and make all the decisions in accordance with each other. Mixed economy carries mostly all the advantages of a market economy. Both capitalism and socialism exist with each other in a mixed economy, making it more popular and more convenient for society needs. Government here provides the public goods and services to the society. Mixed economy promotes a healthy competition which eventually ends up being more profitable for the society. Most of the countries nowadays are moving to become a mixed economy in order to bring more economic development for the citizens of their nation.

These three main economies are actively present in the world and every country has its own way of thinking to adopt a particular economy style for their economic development. Most of the countries now think that mixed economy is the best way to promote economic development whereas there are some nations which prefer planned and market economy to be the best for their economic development.

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Developed Economy

Developed Economy which is a characteristic of a developed nation which has a high standard of living, high economic growth and security with a high per capita income. A developed nation has the capacity to fulfil all the demand and supply of the nation without and difficulty. A developed nation never fails to provide the best of everything to everyone in the nation. Mainly three types of classification are there for economy – 

  1. Developed economy
  2. Developing economy
  3. Underdeveloped economy
  • Developed economies are those which has successfully developed themselves in providing every required amenities to their people and people are living a life with high standards. Biggest example of a developed economy is USA.
  • Developing economies are those which are on the way of development, there is something new and more innovative always going on for further advancement of the nation and its people. Example of such nation is INDIA.
  • Underdeveloped economies are those which are not developing or developing at a very slow rate. These economies are far behind in the overall economic growth and people here have a very low standard of living. Example of such nation is PAKISTAN

We are talking about the developed economies here. Developed economies have worked very hard in the past to achieve this status so that their people can enjoy living there and they have every life comfort they wish to have. Most common way of identifying a developed economy is by calculation of its Gross Domestic Product and by calculating the Human Development Index.

Let us see some of the Key features of a Developed Economy below to get a more clear image of what we are talking about.

  • Developed economies are those which have relatively higher level of economic growth and security for their people.
  • Countries which provides education to all the children with equal rights and opportunities.
  • Countries which have developed technological infrastructure.
  • Countries where people have access to the best of health benefits.
  • Literacy rate of developed countries are very high as compared to others.
  • Birth rate is high and the death rate is comparatively very low.
  • Equal opportunities to work for every individual as per their skills and knowledge.
  • More and more people are engaged in working and very few people are jobless.
  • Every people are having a high per capita income and living a high standard life.
  • All the people living there are above the poverty line and have access to all the beneficial products and services.
  • Countries having a stable population and which has worked to limit its population growth.

These are some of the key features of a developed nation or economy and that is the main reason why people are willing to shift to these nations because they have a better standard of living. If you talk about USA, you can see people from different nations and cultures living there peacefully and enjoying their lives. Generally these people are those who went there to find a better life and ended up living there because they find it more secure and safe for them and their family.

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