Essay on Inflation (500 words)

  

                  “Inflation is taxation without legislation”

                                                                            (Milton Friedman)

Definition:

Inflation is an economic term that refers to an environment of the generally rising price of goods and services within a particular economy. Inflation means there is an increase in the price of goods and services at a high level.

Types:

There are many types of inflation but two main types of inflation are

·        Cost-push inflation

·        Demand-pull inflation

Cost-push inflation:

It is the decrease in the supply of goods and services with increase in the cost of production.

 Demand-pull inflation:

It is caused by an increase in government spending, expanding economy, or overseas growth. Overpopulation causes the use of more goods and services which causes inflation.

Causes:

There are many causes of inflation such as

·        Over population

·        Lack of education

·        More import and less export

·        Less industrial development

·        Government spending

·        Corruption

·        More dependence on the agriculture sector

      Overpopulation:

Overpopulation is a very common cause of inflation where there is more people the need of goods increases which cause a lack of goods and services and in return causes inflation.

   More imports and fewer exports:

In developing countries like Pakistan, they don’t have enough recourses to fulfill their countries demands that’s why they keep on importing goods and services from other countries due to lack of resources they cannot produce enough goods to export in other countries that’s why a large share of government revenue spent on imports.

 Corruption:

Corruption is also a big source of inflation. The corruption can contribute to inflationary finance because of tax evasion and costly tax collection along with capital flight and budget deficit.

 Less industrial development:

Less industrial development also causes inflation. When there are no industries to produce goods and services the number of resources becomes less and causes the price of goods high.

Effects:

 The negative effects of inflation include an increase in the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings, and if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in future inflation is a decrease in the purchasing power of the currency due to a rise in prices across the economy.

Inflation has also bad impacts on poor people’. Poor people cannot afford the price of goods which causes poverty. Inflation may also cause underdevelopment of countries.

When high inflation joins hand with poverty, it becomes unbearable. Life becomes more miserable and painful. High inflation is like adding insult to injury for the poor. Millions of poor people are now living an even extreme form of poverty, which is on the rise.

Controlling of inflation:

The government of a country takes several measures and formulates policies to control economic activities. Monetary policy is one of the most commonly used measures taken by the government to control. Inflation can be controlled by controlling the population. Apart from monetary policy, the government also uses fiscal measures to control inflation. The two main components of fiscal policy are government revenue and government expenditure.        

                                                                                                                   (500 words)❤★☆★