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Inflation Rates

            
             The price of one currency in terms of another is called the exchange rate. The exchange rate affects the economy in our daily lives because it affects the price of domestically produced goods sold abroad and the cost of foreign goods bought domestically. "Mexicans use pesos, French use francs, Austrians use schillings, and this use of different monies by different countries results in the need to exchange one money for another to facilitate trade between countries"(Husted 315). Without the exchange rate it would make it impossible to purchase goods in other countries that have a different currency. Day-to-day movements in exchange rates are closely related to people's expectations. "The role of monetary policy would be to manage the exchange rate. A monetary expansion would tend to lower interest rates, thus lead to short-term funds flowing into foreign currencies, and so depreciate the domestic currency"(Corden 21). Throughout the history of the economy, the exchange rate has not always been controlled under the same monetary system. Foreign exchange is usually traded as bank accounts denominated in different currencies. Most of the trade takes place between the major banks and between banks and their corporate customers. Modern communications make it a truly global market. The rates vary by minute. "Exchange rates changes are largely unexpected and so there is an important element of risk in multinational transactions that domestic transactions lack"(Husted 320). The closing rates in each financial center are reported regularly in the media. The closing rates of the previous day are listed in the morning newspaper for leisurely reading. There are two main types of foreign exchange systems: 1) fixed exchange rate, and 2) floating exchange rate. A fixed exchange rate system is where governments can set a certain fixed rate at which their currencies will exchange for each other and then commit themselves to maintaining this rate.


Essays Related to Inflation Rates

1. Price Stability and the Optimal Rate of Inflation

Due to the many associated costs of inflation it would appear that the optimal rate of inflation is zero. ... Due to the U-shaped relationship between relative price variability and inflation, the optimal rate is a low but positive rate of inflation (Caraballo, 2012). ... Inflation rates aimed at zero can easily become negative and cause deflation in an economy. ... The simulation was made to match the economy of the United States and found that a 3% rate of inflation was associated with a rate of unemployment 2.1 percentage points lower than an economy with zero inflation. ... Therefore, ...

  • Word Count: 1952
  • Approx Pages: 8
  • Grade Level: Undergraduate

2. Hype Inflation

Countries in the industrialized world, too, have at times dueled with dangerously high inflation rates in the post WWII era. With varying degrees of success, all have employed great efforts to bring their inflation rates within acceptable limits. Generally, a moderate rate of inflation has been the ultimate goal. ... As noted by Pierre Fortin, "the only objective the Bank of Canada has pursued since 1989 has been to establish and maintain the inflation rate at 'zero level', which it sees as a CPI inflation rate that is clearly below two percent" (italic added). ... "Since 1989 th...

  • Word Count: 4264
  • Approx Pages: 17
  • Has Bibliography
  • Grade Level: Undergraduate

3. Inflation and Unemployment

It has direct impact on the growth rate, the growth rate inflationary becomes unsustainable and is usually followed by a recession. ... Although many believe, that the recession was not due to only inflation but instead, it was a combination of both high inflation and high unemployment rates. ... Similarly, in the case where inflation rate is higher than the interest rates, people's savings are deeply affected. ... Moreover, many people are not able to build social biddings because they cannot afford all the expenses that come with raising a family; therefore, divorce rates increase, whil...

  • Word Count: 1530
  • Approx Pages: 6
  • Has Bibliography
  • Grade Level: Undergraduate

4. Inflation

Cost-push inflation results in an initial increase in costs, like money wage rates and in the money prices of raw materials. ... Whether the inflation rate turns out to be higher or lower than expected, unanticipated inflation imposes costs. ... Hyperinflation is inflation that exceeds at exceptionally high rates. It is an inflation rate that exceeds 50 percent a month. ... Although on the average, the two are very similar, the GDP deflator and especially the CPI, tend to overstate the inflation rate. ...

  • Word Count: 2312
  • Approx Pages: 9
  • Grade Level: High School

5. Inflation And Unemployment

I can see the Federal Reserves reasoning behind raising interest rates to slow down the economy and lower inflation, but they need to realize that the rate of inflation is not completely dependant upon the rise and fall of the economies well being. ... The Phillips curve, the observed relationship between inflation and the unemployment rate, has long been a mainstay of market and policy analysis of inflation in the United States. ... The unemployment rate has fallen in the 1990s, but the expected subsequent increase in inflation has not occurred. ... Some have argued that inflation has declin...

  • Word Count: 1655
  • Approx Pages: 7
  • Has Bibliography
  • Grade Level: Undergraduate

6. Inflation

When the inflation figures' come out once a month and are quoted on the news, the newsreaders give certain percentage rates of inflation'. ... This is much harder when inflation is high. High inflation tends to coincide with variable inflation and, therefore, very unstable prices. ... Also, at times of high inflation, the Monetary Policy Committee are likely to raise interest rates in an effort to deflate the economy and reduce the inflation rate. Higher interest rates will result in firms investing less, consumers spending less and the value of the £ rising, which is bad...

  • Word Count: 269
  • Approx Pages: 1
  • Grade Level: Undergraduate

7. Inflation

"Inflation that is higher than expected benefits debtors. ... When inflation is unanticipated, or under anticipated, the effect is that the debtors, who borrow money to repay with an interest rate, are required to pay off their obligation at the set amount, of which the value of has decreased according to the rate of inflation. ... When the creditor lends money he factors in anticipated inflation, as well as a real interest rate, the percentage of the investment that he wants as profit. If inflation does not reach the anticipated level, then the creditor collects the amount, the real inter...

  • Word Count: 534
  • Approx Pages: 2

8. Inflation

These are inflation, deflation, hyperinflation and stagflation. ... Inflation in effect wipes out your purchasing power. ... One way of measuring inflation is the inflation rate ("The annual percentage rate of increase in the average price level") (Schiller p.138) This is measured by the consumer price index or (CPI) ("A measure index of change in the average price of consumer goods and services") (Schiller p.138) This is the average price of all consumer goods. ... High tax rates are a cause of stagflation, so lowering taxes helps to end stagflation. Another form of inflation is hyperinflati...

  • Word Count: 1165
  • Approx Pages: 5
  • Grade Level: High School

9. INFLATION

For example, the inflation rate averaged 15% between 1973 and 1981, and 6% between 1981 and 1990 (Begg, p.274). ... Inflation can cause a redistribution of wealth from savers to borrowers, because the real value of debts (the nominal value minus the inflation rate) is falling. ... Keynes explained that it may be sensible to hold cash when interest rates are low, because bond prices are very high. If interest rates rise, bonds will fall in value, because they pay a fixed return. Keynes believed investors would avoid bonds and hold cash when interest rates are very low, as they would be afrai...

  • Word Count: 1523
  • Approx Pages: 6
  • Has Bibliography
  • Grade Level: High School

10. Inflation and Unemployment in Australia

Australia has enjoyed relatively low levels of inflation with the current inflation rate at around 2.9%. ... The underlying rate which emits the most volatile and least volatile Inflation in general is considered a problem for all economy as it can lead to major economic and social problems within an economy, but there is a need to have a contained and stable rate of inflation as it will help the RBA tackle deflation if it ever occurs. ... Savings left in bank account will depreciate in real value if nominal interest rate cannot keep up with inflation. ... Borrowing will be more expensive as ...

  • Word Count: 1503
  • Approx Pages: 6
  • Has Bibliography
  • Grade Level: Undergraduate

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