• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Discuss the consequence of a rise in the rate of inflation

Extracts from this document...

Introduction

Discuss the consequence of a rise in the rate of inflation Inflation is a continuous and sustained rise in the average price level. It is a process of prices rising. It includes wholesale and factor prices. The target rate for inflation in the UK is two percent; the government's aim is to achieve this target rate. Inflation can be measured using several methods including retail price index (RPI). The result can be obtained from making a price survey out of selection of goods and services that are demanded by average families. These goods and services are also known as basket of goods. An average of 650 goods and services are chosen from the families' consumption pattern through the country. The data is collected on monthly bases for accurate information and the price will be determined depending on the expenditure on these goods by those who consume them. ...read more.

Middle

There are other factors that could increase inflation such as increase in consumer confident and rate of house prices. High inflation can case damages to the economy. It may even turn into hyperinflation which cases a wage spiral to develop. Increase in prices of the goods and services can case a demand for pay rise; this would automatically case inflation as the companies try to cover the extra cost by passing it into the costs of products and services they sell. If the cycle keeps on continues then the inflation will keep on rising. The demand for goods and services also has an effect on the inflation. With fast inflation people will demand for goods and services now before the prices goes up, trying to avoid the extra costs they have to pay for the same product. ...read more.

Conclusion

Besides, inflation may drive people into large depths as they struggle to cope up with the higher prices e.g. increase in price of fuel, food and mortgage interest rates. Projects such as Olympic, school buildings and transport improvements may exceed the government's budget and may cost budget deficit. Fast inflation will case menu costs and administrative costs. This is because the firm have to keep on adjusting the catalogues and advertisements. It would be hard for them to make right decisions and make any predictions because of the price keeps on changing. The unstable inflation may make them think that they are doing well forgetting that the employees also demanding for wage rise. Peoples on the other hand thinking that their wages are rising and may take loan out of their banks and they will end up struggling to pay the debit as the Bank of England put up the interest rates up. ?? ?? ?? ?? Vivek Santhirababu 1/03/09 ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level UK, European & Global Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Here's what a teacher thought of this essay

3 star(s)

The writer ignores the fact that different groups may do better or worse in times of inflation. Borrowers do well, savers do badly as the true value of their savings fall. There are some benefits to a little inflation as it allows for adjustment of prices and wages (they are unlikely to fall otherwise)

Marked by teacher David Salter 12/02/2012

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level UK, European & Global Economics essays

  1. Marked by a teacher

    Discuss the extent to which the fast economic growth of China and growth of ...

    5 star(s)

    theoretical monopoly, but there can be no doubt that the rise of China has been bad for Europe and the UK. However, the fact that UK workers are losing their jobs to China is largely going to benefit in the UK economy in the long run.

  2. Marked by a teacher

    International Business Strategy - Case Study on Unilever

    4 star(s)

    In addition, they are current members of World Trade Organization which are committed to provide a free trade environment by lowering import tariffs and removing trade barriers. A stable government and political environment are the basic criteria for economic growth; therefore, governments of the above stated developing countries strive to ensure political stability for their economic reforms to proceed effectively.

  1. Marked by a teacher

    Assess the importance of international trade to the UK economy

    4 star(s)

    Services are a crucial component of the UK economy and its international competitiveness. The services sector makes a significant contribution to the UK economy. The UK has had a Trade surplus in services which has illustrated a competitive advantage in many services in the global economy.

  2. Peer reviewed

    Discuss the economic consequences of inflation?

    4 star(s)

    This occurs because inflation brings perpetual uncertainty as to what the latest prices are. Menu costs are the cost of changing price lists, catalogues and advertising as well as the cost of maintaining and replacing/updating vending machines which is more frequent if inflation is high.

  1. How reliable are National income statistics as a means of comparing living standards between ...

    The factor cost of the output is relevant and hence indirect taxes must be deducted and subsidies that cover private firms' costs must be added to arrive at the actual value of the output.

  2. Robert Keohane and Joseph Nye have described international relations as exhibiting 'complex interdependence'. What ...

    can result in the dispute being solved. It can also be said that the increasingly rapid expansion of non-state actors acted as a catalyst for the broadening of linkages between states on various levels. Previously inter-governmental relations had been conducted through designated channels.

  1. Compare and contrast the levels of economic development in the regions of Europe and ...

    Questions will be pointed as to if Africa can use the 'Europe model' to improve its economy and whether this is the right answer; if not then what is? Also the question of 'what economic lessons can Africa learn from the European regional economic experience' will be put across and addressed.

  2. Explain how the costs of the congestion can be estimated &Discuss how a more ...

    These costs are also big contributors, and represent about 20% of the total costs. Apart from the major costs, other indirect costs are also brought in at the same time. Although they are only a minor part, they can not be neglected.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work