Sub-topics
I. Definition of Inflation
Inflation is a monetary phenomenon in which an increase in the supply of money over a period of time leads to a general increase in the price level. In other words, inflation means that the same amount of money can buy fewer goods and services over a period of time.
In the case of inflation, people need to pay more money to buy the same goods and services because the purchasing power of money has decreased. This can have a negative impact on fixed income earners and savers, as the value of their income and savings is eroded by inflation.
2. How to control inflation?
The way the central bank controls inflation:
Central banks control inflation by implementing monetary policy. Monetary policy is the way in which the central bank uses the money supply and interest rates under its control to influence economic activity. Among them, central banks mainly use two ways to control inflation, interest rate regulation and money supply regulation.
Interest rate regulation refers to the way in which the central bank influences lending rates and borrowing costs in the market by adjusting benchmark interest rates, such as the central bank rate and lending rates, thereby influencing the consumption and investment decisions of businesses and individuals, which in turn affects the level of activity and inflation in the economy as a whole.
Money supply regulation refers to the central bank’s ability to control inflation by adjusting the money supply to influence the liquidity of money and the scale of credit in the market. The central bank can achieve money supply regulation by conducting open market operations, adjusting the reserve requirement ratio, and adjusting the refinancing rate.
Ways for the government to control inflation:
The government can control inflation through a variety of means, including the following:
Fiscal policy: The government influences economic activity and inflation levels by controlling fiscal spending and tax policies. For example, the government can curb inflation by reducing fiscal spending or raising taxes to reduce the money supply and liquidity in the market.
Regulatory policies: The government can curb inflation by regulating financial institutions and markets and strengthening the regulation of the behavior of various economic agents in the market.
Price control: The government can control inflation through price control, such as measures to limit the increase of commodity prices or raise the cost of production.
Increasing capacity: The government can curb price increases and inflation by increasing the capacity of the economy and increasing the supply in the market.
3. Impact of Inflation
Consumers are individuals or households that purchase goods and services. Inflation affects consumers in the following ways:
Decreased purchasing power: As prices rise, consumers need to spend more money to purchase the same amount of goods and services, and their purchasing power decreases.
Damage to fixed income: For those with fixed incomes, such as retirees, low-income earners, etc., inflation can lead to a decline in their real income and a decrease in their standard of living.
Inflationary expectations: If consumers expect inflation to persist or continue to rise, they may increase their consumer spending, leading to increased inflation.
Businesses are organizations that engage in the production and sale of goods and services. Inflation affects businesses in the following ways:
Rising costs: Businesses need to pay higher costs to purchase raw materials, labor, and other factors of production, which leads to higher costs and lower profit margins.
Rising capital costs: Inflation leads to currency devaluation, and enterprises need to pay higher interest rates to borrow money, thus leading to higher capital costs.
Decrease in market demand: Inflation leads to a decrease in consumer purchasing power, which adversely affects the market demand of companies and may lead to a decrease in sales volume and lower profits.
Activity
Quiz: This course will also include a quiz to assess the student’s basic knowledge of inflation and its effects. The quiz will consist of multiple-choice and true-false questions to ensure that students have acquired the required basic knowledge.