1. Moderate inflation does not necessarily cause loss of
competitiveness in international markets. Usually inflation occurs when
there is an increase in money supply. Exchange rates adjust to changes
in money supply faster then prices do. Prices are relatively sticky.
Higher demand does not always come inflation. In fact, the level of
demand which is significantly below production capacity pushes
up, because it makes per unit fixed production costs and marketing
costs to increase. Therefore a very low demand is just as likely to
cause increase in prices as very high demand.
3. Demand depends
on the population structure. Young population demands a lot of goods
and services. Older population is conservative with spending and has
high propensity to save.
4. Although it is true that
hyprinflation is destabilizing for the economy, a moderate inflation is
believed to help job creation and promote economic growth.
Cool that you're following this blog and adding your
input. Though your statements are accurate (and btw don't contradict
anything that was written), they are irrelevant to the purpose of this
blog - which is to give readers a basic understanding of economic
concepts so that they may gain insight into economics and how economics
affects their lives. We're working here with simplified models so that
the essence of the information can be grasped. The reality of economics
is never this clear-cut and in practice contains many shades of grey -
but the essence of the concepts remains and the understanding of them is
really all that's necessary to gain a clearer understanding of what
makes this world go 'round.
Now, Nina - I challenge you to look
further than your schooling and merely entertain yourself with the
extent of your knowledge - but to really question the implications of
this economic system. Instead of regurgitating the general opinions and
beliefs about it as how you've been presented with them in your
education, investigate it for yourself in common sense. Our economic
system has become far more than some 'fascinating object of study' - it
is the one thing that controls people's lives. So - wake up and smell
the coffee. Time to take responsibility within the knowledge that you
Ah, sure, I already woke up a few years ago, in 2007, to be precise,
when I wrote a letter to CFA institute, saying that with economic theory
such as we have and teach we are headed streight towards the next Great
Depression. I have explained back then why. I did not get a reply from
them. I am not sure if you are interested either. The truth is, our
economuc theory IS a mess. The reality is, we need this screwed up
system to manage the screwed up people we have. If all people were 100%
mature, 100% conscientious, 100% hard working and 100% willing to share
we could have a much better system. But people are the way they are.
Most of them lazy, irresponsible and greedy. This is why despite all the
theoretical considerations the current fkd up system is the only one
that works despite all odds with a little help from the governments,
religious, charitable and various regulatory organizations. Ah, yes,
andone more problem. We have 9 billion people on Earth and counting.
Some believe it is too much. So we need a system that can help us reduce
the numbers, no matter how faulty it may seem.
Not sure how this
article is helping readers to understand the flaws of the current
system. What I see is the concept tgat inflation is way too dangerous.
And since it is sooo frkng dangerous let us make sure most people do not
get access to money, because once theyget money they aregoing to demand
goods and services, which will drive prices up. There are a couple of
problems with this vision of inflation, which I have mentioned in my
terms of the purpose of the blog - it's not to look at this one
blog-post in isolation. In this post we're merely explaining the concept
of inflation so that people may develop their vocabulary and more
easily engage in/understand economic discussions and call out the
I think I finally get the point. In a market economy the problem
ofscarcity is resolved through a price increase. Suchway of a probkem
resolution is in favor of the rich (who can still afford it at higher
prices) and against the poor (who can not). Definitely this is unfair
and causes numerous economic problems. I believe the 2008 crisis was to a
large extend caused by that principle. First, the housing becomes
sarce. Then we deal with the problem mainly by charging higher prices
for real estate property. However, higher prices do not make scarcity
disappear. They just make it less painful for people with sufficient
money to pay themselves out of it.
This certainly goes against
the rest of the people, who do not have enough financial resources to
deal with scarcity by simply paying more then others do. One way they
try to deal with it though is by borrowing more then normal, and for
peope already struggling financially such borrowed money is almost
impossible to repay, which leads to the credit crisis.
since scarcity can lead to higher prices and more profits it makes a lot
of sense for some business groups to create it artificially! One fatal
example of it I see when senior employees are purposefully sabotaging
training and developement of junior employees withing the corporations.
With more and better trained junior employees corporaions could produce
more goods and services, which would be for everyones good. However out
of fear of competition, or being replaced, or lising one's job, or
having to accept pay cuts senior employees do their best to get rid of
the juniors. That makes them more scarce and more valuable to their
prospective employers! So juniors are punished into years of fruitless
university studies and tens of thousands dollars of student loans that
they can never repay, because they can not get jobs and acquire real
skills necessary to do them. This way we have a waisted youth and a
waisted economic system, capable of producing almost nothing at a
reasonable cost. A better approach todealing with scarcity is certainly
and was previously concidered through planned economies. The concept
was good. However implementation was tricky, especially with the
leaders, who are not 100% trustworthy."