Inflation Impact on the Economic Growth

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Freshman (College 1st year) ・Business ・APA ・3 Sources

Evans explains that there is an inverse relationship between inflation and unemployment. The find out about presents model simulation methodologies in the determination of the relationship between unemployment and inflation. In the findings, the “Phillips curve suggests the inverse tradeoff between unemployment and inflation associated with changes in wages”. Low unemployment levels make firms to compete for work; thus, raising the salaries. Consequently, higher wages labor costs and enterprise compensate by increasing commodity prices.

In this study, I am going to use statistics and costs to facilitate my investigation of the effects of inflation to an economy. Statistics, I am going to use statistics and quotes to facilitate my investigation of the effects of inflation to an economy. Statistics that is applicable shows that U.S. inflation has stayed stubbornly low even though the unemployment rate has been progressively down, from 1 per cent in October 2009 to 4.9 per cent in February 2016. Another statistical data is: during the recession the correlation between inflation rate and unemployment was 0. 61. The quote I am planning to use is: “Cost of living variations would then lead to a larger increase in wage rates than would have occurred as a result of employers’ demand for labor and this would cause a further increase in retail prices” (348). Another relevant quote is “Moreover, higher salaries increase consumption and demand which also increases prices” (342).

Goldsmith, Arthur. “Rethinking the Relation between Government Spending and Economic Growth: A Composition Approach to Fiscal Policy Instruction for Principles Students. Journal of Economic Education., Vol. 39 Issue 2, p153-173. 21p. Spring 2008.

This study posits that an increase in government spending expands aggregate demand that leads to inflation and discourages private investment. The study finds out that increased government spending leads to a deficit budget in the long run. Therefore, the government increases its borrowing to finance the deficit which leads to a interest rates. Consequently, private investors shy away due to the high-interest rates that increase their cost of capital. Goldsmith explains that “high-interest rates dampens an economic growth by discouraging private investment” (158).

I am going to use several numbers of materials from this source including a quote, and a statistic that will help me to study the effects of inflation. A quote I am going to use from this source is: “because the decrease in investment results in a smaller capital stock, potential output or production capacity decreases” (155). Moreover, a statistic I may use is a 1.0 percent reduction in government spending leads to an increase in investment by 0.16 percent (161).

Schmidt, Peter. “Faculty Salaries Barely Keep Pace With Inflation.” Chronicle of Higher Education., Vol. 68 Issue 33, pA28-A28, 2017.

This source reveals that inflation has raised the living cost and lowered the purchasing power of consumers despite the increase in salary to college instructor. Schmidt argues that “full-time college faculty members received substantial salary increases this year, but they lost much of the added spending power they had gained to an uptick in the cost of living” (par. 1). Consumers feel the inflation pinch because it lowers the value for money and raises living standards.

I am going to apply statistics and quotes from this source to investigate the effects of inflation on economic growth. The quote I am going to use is: “In real terms, however, their pay increases exceeded the increase of the Consumer Price Index, which measures inflation, by just one-half of one percent” (par. 2). The statistic I am planning to use is, in the academic year of 2016-17, full-time college instructors earned an average of 2.6 percent more than they had in 2015-16.

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