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

High levels of inflation are always associated with negative consequences. According to an article, since 1980 the Zimbabwes agricultural output has fallen by 850,000 tonnes. Even if the wages of farmers, i.e. the majority of workers in Zimbabwe

Extracts from this document...


Article 1-analysis One of the main objectives of governments' macroeconomic policy is to keep price as stable as possible. In other words, every government intends to keep a low and stable rate of inflation over time. Inflation is defined as persistent increase in the average price levels in an economy. High levels of inflation are always associated with negative consequences. According to an article, "since 1980 the Zimbabwe's agricultural output has fallen by 850,000 tonnes". Even if the wages of farmers, i.e. the majority of workers in Zimbabwe, would have increased at the inflation rate, because of the rapid fall in agricultural output, many of them would have been laid off anyway. This means that the community of Zimbabwean farmers altogether have less to cherish. In view of lower production levels in the country - leading to less income for distribution among people - and the high inflation rates, the population suffer and significantly lose their purchasing power. ...read more.


The lack of investment creates unemployment and therefore there would be less money injected to the circular flow of income. According to classic economics, there are a few ways to reduce high inflation rates. One way is the use of fiscal policy. This policy is usually used when there is a demand-pull inflation. This policy may include an increase in taxes or decrease in government spending. However this policy does not make sense in a country such as Zimbabwe where 80 per cent of its population live under the poverty and survival line. It is very difficult for the Zimbabwean government to reduce its spending because of its public commitments, especially in the time of food shortage and high unemployment. The government may also consider increasing interest rates or reducing money supply (deflationary monetary policy). ...read more.


After 1980 when the government was unable to raise tax revenues, it responded by printing money to pay its bills. In 2005, Zimbabwe repaid part of its debt to the IMF by printing 21 trillion Zimbabwean dollars. In Harare, the capital city, bus drivers increase their prices twice daily. Currency notes are only printed on one side to save ink and come with a use-by-date. It seems that the government in Zimbabwe is running out of options. The only way for the government to improve the situation is to regain the trust of its people and the international community. This is sometimes not easy to achieve in the short run, especially when the steering wheel of affairs run out of hand. That is why Mugabe's government seems to be seeking a dignified way to step down and leave its successors to give the country a fresh start. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

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

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 International Baccalaureate Economics essays

  1. Evaluate the view that governments should always prevent firms from being monopolies.

    set up a competition but often it is not able to survive this. The second example is brand loyalty. Often products are known by the brand name.

  2. Commentary on Indian News Article "Food prices push inflation to 6.95%"

    Fiscal policy is changes in the government's own expenditures and taxes while monetary policy is changes in changes in the supply of money and interest rates in the economy. To ease inflation, the government can to decrease AD by increasing taxation and decreasing government expenditure using fiscal policy or using a contractionary monetary policy and raise the interest rates.

  1. Is it possible to reduce unemployment without increasing inflation

    As for inflation, monetarists see it even simpler and easier to tackle. This is because in the long term, as Friedman said at the Wincott Memorial Lecture in London in 1970, inflation is always and everywhere a monetary phenomenon. Therefore, what it is needed is that the government, i.e.

  2. Rising unemployment and inflation commentary. The above article Bah Humbug talks about the ...

    The latest figures cast a shadow over that bright picture since they showed the jobless rate rising from 7.7% to 7.9%. That took the total back to 2.5m, the peak in this cycle that it had reached in early 2010.

  1. Rolls-Royce to axe up to 2,000 workers - discuss.

    to cut costs is labour costs. Labour is a variable cost that can vary in proportion to the quantity produced. Meanwhile the other FoP's such as land and capital are fixed costs that must be paid regardless of the rate of production in the short run.

  2. Coursework: Is Chester Zoo value for money?

    million, and the size of Chester Zoo is going to be tripled. The estimated completion date is 2020 and will divide the zoo into four zones representing African savannah, grassland, forest and island and wetland habitats. In the next 18 months, Chester Zoo is going to be built a new aquarium building called Origins.

  1. Macroeconomics IA South Korea inflation at threeyear high on food price jump

    Fiscal Policy will shift the aggregate demand curve in from AD to AD1, which will lead to the desired effect of a fall in price level from P to P1, however, it will also reduce GDP from X to X1, and this means that economic growth decreases, which is rather bad for an economy.

  2. Advantages and Disadvantages of High and Low Exchange Rates & of a Fixed and ...

    In case of that, the exchange rate needs to be devalued, but again, finding the exact right level is difficult. Furthermore, a country that fixes its exchange rate at an artificially low level may create international disagreement. This is because a low exchange rate will make the country?s exports more

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