Essay/Term paper: Money and inflation

Essay, term paper, research paper:  Management

Money and Inflation


The nation's economic stability has many factors which amount to inflation.
Inflation may be caused by a number of problems, but there are some specific
examples which have direct control over which way the prices and spending sway.
Inflation simply means that the American dollar, in this case, is less valuable
on the foreign exchange market and the gold standard is moved to higher prices;
which simply means that more currency is needed to exchange for gold.

Any slight change in investments or a company's cost premium could change
the entire economy because of the domino effect acting on the rest of society.
For an example, flooding in a particular region of the country could cause
inflation. In the long run, the flooding may be catastrophic for businesses
because it could cause a shortage of products. In order for the businesses to
make up for any lost income, they must boost their prices and make the profit
margins go up. The profit margins make up for the lost income and balance out
that particular company, but everyone else must suffer the consequences. In the
business world; the more they produce, the less they can sell for; the less they
produce, the more they sell the product for.

Profit margins can have a direct impact on the consumer. The more an item
cost, the less a consumer will want to purchase that particular good. Higher
profit margins may be able to balance a company's budget, but unless their
product is in very high demand, most people will want to buy the product. The
lack of people purchasing the item may cause the company to lose money and have
no alternative other than to lay off workers. People out of work means that
less consuming will take place, meaning that other businesses will hurt due to
the lack of sales, perhaps causing those other businesses to move up their own
profit margin, in turn creating the same cycle at a faster rate.

With businesses under, the unemployment rate would be phenomenal. People
would be seeking government assistance while the government itself is so far in
debt and tied up in credit. The government assistance would add to the already
huge problem of the federal government spending more than it has. The result of
all the hand outs would cause an enormous dent on the federal deficit. The
deficit is already bad enough, but in a case like this, the government would try
to do something to prevent a long recession.

The Federal Reserve bank tries to balance the economy out by influencing
other banks to print up more money to make up for the losses. This may stop the
ship from sinking all the way, but this decreases the value of the dollar
because of the excessive amount of money in circulation. The dollar is less
valuable on our own market, so prices rise. The dollar is also less valuable on
the foreign market which means that it takes more money to equal a yen, mark, or
pound. Also, the value of an ounce of gold is worth less due to the gold
standard, which lets gold be redeemed for dollars. Inflation has occurred and
value of the dollar has decreased. If most people wouldn't panic and just stay
calm, less stress would be spread, making the entire economic industry a safer
and easier thing to live with.