The economy, globilazation, and inflation

The economy, globilazation, and inflation

1. In an economy, price levels of goods or services tend to fluctuate and it can be measured. Inflation can be regarded as the quantitative measure of the fluctuation of services and goods. Due to inflation, purchasing power of the people decreases because the currency of the nation gets affected. Globalization has a potential impact on inflation. Consequently, the monetary policies of a nation are affected. Experts regard inflation as a monetary phenomenon.

Advanced, as well as emerging economies, are affected by inflation. Variation in the inflation rate exists based on the type of economy. A lot of global factors affect the transmission mechanisms of an economy. In the case of the high inflation rate, the cost of living will be high as well. As soon as the price of goods and services increases, the purchasing power of consumers decreases. Inflation increases as soon as the rate of unemployment decreases. An inverse correlation exists between unemployment and inflation.

2. Globalization has significantly increased the inflation rate of emerging and advanced economies. When services and goods are internationalized, there has been increased dependence on the nation’s economy. In China, there has been an increase in the price of agricultural products and energy metals. This is because the demand for agricultural products and metals has increased. Since the people were getting more productive, the need for services and goods also increased.

However, the supply of the products has fallen. However, the negative impact of globalization is a debatable issue. Again, the unemployment rate of a country is affected due to inflation. Unemployment is the result of changes in technology and other related factors. A complicated relationship exists between inflation and unemployment. Movement in the monetary policy has an impact on prices, wages, and the economy. In the emerging nations, the economy is affected by low inflation, low unemployment, and, most importantly, negligible gains.

3. The term “inflation” refers to a price increase along with a decrease in the purchasing power of consumers in the economy. It is a quantitative measure of the rate of fluctuation of the goods and services. Within the economy, prices tend to raise because of rising production costs including wages and raw materials. Inflation occurs when the demand for a service or good is high; however, the supply is low. Again, globalization’s effect on the U.S economy can be considered to understand the pattern.

For instance, an increase in trade between the U.S and other nations have influenced inflation. Over the decades, inflation has been affected by trade exchange. Again, a relationship has been established between unemployment and inflation. The unemployment rate in the U.S has been affected by a range of factors. Among them, technology and modifications in the minimum wage are the vital factors. In 2016, the unemployment rate in the U.S was at 4.8%.

4. Inflation is not a static measure, and it tends to fluctuate based on the needs of the economy. Over many decades, trade among countries has affected the inflation rate. Notably, fluctuations in the rate of inflation in the U.S have been the result of the internationalization of services and goods. Phillips curve can be considered to understand the effect of globalization on the inflation rate of a developing economy.

Depending on the measure of inflation, the effect of globalization can be outlined. For a specific period, prices of goods and services tend to fluctuate, and the percentage decrease or increase can be regarded as inflation. In a developing nation rate of unemployment increases due to inflation. Due to the presence of an inverse correlation, the unemployment rate tends to fluctuate. The relationship is complicated, and experts are conducting further research to find a conclusion. A lot of economic indicators play a role in the economy.