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Economic Essay on Economics: Inflation

Economics: Inflation

Review of the article ‘‘The Association and Impact of Inflation and Population Growth on GDP: A Study of Developing World,’’ by Khan, et al, (2013).

Primarily, this paper focuses its argument on inflation effects on an economy and more specifically, its effects of GDP and population growth across developing nations.  The overall theme presented in the article is the results of inflation in negative effects, thus, destabilizing an economy. There are different inflation effects on an economy and they include reduced or stagnation of disposable income, reduced individual savings and tax increases thus, currency depreciation, national saving and skyrocketing import prices.

Individual income levels upon onset of inflation in a given economy become and remain stagnant as inflation intensifies. Stagnation often leads to lose of income to value as time goes by an indication that a person’s earnings can have a small purchasing power in the event of recession and after unlike before recession. Inflation also leads to increase in tax where individuals are taxed a lot of money on the products and services they consume.

Increase in tax bracket also leads to a low saving power in a given economy. Additionally, individuals do not save a lot of money in the event of inflation since they do not like their cash declining in value persistently in the future. This kind of perception also leads to low national saving. What’s more, inflation leads to degrade in value of the local currency thus, reducing its purchasing power. It is a fact that increases the prices of imports compared to that of exports.

Negative effects of inflation also have different effects on the GDP and growth of population especially in developing nations. Inflation generally reduces GDP growth in developing countries and as mentioned above, its effects on an economy are negative. Additionally, inflation effects on individual savings means reduced national savings.

In a developing economy, when people save less in the event of recession, they also reduce the saving function of GDP, and it leads to reduction in of national GDP growth. Growth of national GDP also declines in developing countries in the event of recession due to reduced national income. Income is a GDP function therefore, decline in disposable income leads to reduced national saving and it also reduces the growth rate of the national GDP.

During inflation, the currency depreciation leads to reduced foreign direct investment in developing nations. What’s more, investment is a national GDP function, hence, reduced investment leads to reduced GDP growth rate. Net export is also another national GDP component.

Depreciation of currency during inflation makes imports expensive in developing countries compared to other nations. Increase in import value during inflation increase the value of net export, leading to reduced national growth rate of GDP. National GDP growth is also correlated positively to population growth. Therefore, reduced national GDP means reduced population growth. It also means that population growth during inflation occurs as a result of low GDP growth.

Difficult financial times during inflation lead to a negative impact on the health and life expectancy of individuals. Such occurrences in the event of inflation also have a pronounce effect on growth of population in developing countries, it reduces population growth. The article clearly, is related to inflation based on the fact that it offers a vivid picture of inflation effects in an economy, more specifically, its effects on population growth and national GDP growth.

The article also outlines different economic components affected by inflation, how it reduces national GPD and growth of population in a developing country.

 

 

 References

Khan, A., Z., Yahya, F., Nauman, M. &Farooq, A., (2013).‘The Association and Impact of Inflation and Population Growth on DGP: A Study of Developing World,’ International Journal of Contemporary Research in Business, vol. 4, no. 9, pp. 903-911. Retrieved from: <http://journal-archieves27.webs.com/903-910.pdf>

 

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