INFLATION_MACROECOMIS SUBJECT FOR COLLEGE

MACROECONOMICS

1. INFLATION: defined as a broadly based rise in the price level. In other words, inflation is an ongoing rise in the general level of prices of goods and services in an economy over a period of time. In addition, if there is inflation there is a general upward movement in the prices of goods and services in an economy. The rate of inflation can be measured using price index such as wholesale price or consumer price and the like. In the case of the Philippines, it uses the prices index to measures changes in the price of goods and services generally consumed by the public. Book ref: VIRAY, JR., AVILA-BATO, MALVEDA, MACROECONOMICS Simplified. (2016). Anvil Publishing, Inc. Mandaluyong City

2. INFLATION Economic plans and policies are intended to improve the standards of living of people. It means, among other things, the incomes that they have. It means that the people should be able to buy better quality food, live in better houses, and send their children to school, among other things. Inflation, however, negates the economic objective of improving the quality of life of people.

3. First, people who have fixed incomes are severely affected during inflation. With increased prices, people who belong to this group would be lose out because the income they receive now would be able to buy less than before. Secondly, because of increased in price, benefits of pensioners from the Social Security Systems (SSS) or the Government Service Insurance Systems (GSIS) would result in a net loss to the pensioner. Creditors also lose out during inflation. The reason they lose out is because the fixed amount of principal and interest they lent out would now be valued less.

4. In most countries, central bank or other monetary authorities are tasked with keeping interbank lending rates at low stable levels, and the target inflation rate of a t 2% to 3%. Central banks target a low inflation rate because they believe that high inflation is economically costly because it could create uncertainty about differences in relative prices and about the inflation rate itself,

5. Higher interest rates reduce the economy’s money supply because fewer people seek loans. When banks make loans the loan proceeds are deposited in Bank accounts that are part of the money supply. Therefore, when a person pays back a loan no other loans are made to replace it, the amount of bank deposits and hence the money supply decrease.

6. Book ref: Danilo F. Marcelo, Jr. DBA, macro economics (c2021), Unlimited Books Library Services & Publishing Inc. Intramuros, Manila ISBN: 978-427-092-7