“MACROECONOMICS”

The following will further illustrate the difference between macroeconomics and microeconomics:

Microeconomics seeks how the supply of rice might affect its price; Macroeconomics asks how a drop in the price can affect government policies on rice production.

Microeconomics studies particular aspects of the market, such as which products are hot and which are not; Macroeconomics studies overall trends and factors that affect the performance of the market as a whole.

Microeconomics deals with the way house holds consume goods using money income; Macroeconomics answers how controlling the money supply may affect the country’s economy.

Macroeconomics pertains to the overall aspects of the economy, most nations have macroeconomics aspects in place and the success of their economy depends on the success of their macroeconomic programs and policies.

Macroeconomics also deals with such concepts as government expenses, trade policies, exchange rate, inflation, and unemployment.

Keynesian macroecomomics it is proposed that demand and supply does not reach equilibrium automatically, it requires government intervention.

INFLATION AND DEFLATION

Inflation is a rise in the level of prices, in general. This comes a whole and like a trend, and does not mean that the prices of all goods are arising.

Measuring Inflation Inflation is measured using the consumer price index or PCI.

The Consumer Price Index is the common measure of the general or overall level of prices. The inflation rate is the general rate in the rise of prices. If the inflation rate is 7%, then that means the cost of these prices or the cost of living has generally risen by 7%, and the power of your money to purchase decreases.

Theories and Causes of Inflation

Inflation has been attributed to two major causes. The first one is called demand-pull inflation. Demand-full inflation happens when there is excess or too much demand for certain goods and services that are not met by a corresponding increase in the supply of those goods and services.

Cost-push inflation this inflation happens due to changes in the supply side of the market. This happens when there is a general increase in the cost of production that may be due to higher wages or increases in the cost of raw materials and other inputs.

Effects of inflation

The effects of inflation may range from the ordinary rise in prices to the most bizarre changes in an economy. The following are some of it’s effects:

•Inflation reduces the purchasing power of money. People could buy less with what they have, and will need to spend less to afford the cost of living.

Inflation is a big burden to fixed income earners, or those with no capacity to raise their incomes quickly.

Because of inflation, people will discouraged or unable to save, because the reduced value of money would not be enough even for their daily needs, and they will assume that the money they will save will have less value in the future.

-Inflation may lead to an inflationary spiral; as prices rise due to inflation, workers may request for an increase in wages. If businessmen agree to an increase, then they will be forced to increase the prices of their products, thus leading to another inflation situation, and so on.

-When inflation leads to hyperinflation, or an rapid type of inflation that has a devastating effect on the economy, then it may further lead, given the combination of event and situations, to an economic collapse.

-One good effect of inflation is the benefit derived by business who have just bought machines, equipment, or other capital goods before the advent of an inflation; thus they may have benefitted from the transaction.

Inflation Through the Years

Inflation has occurred in various ways and in varying degrees among many countries. Indeed , inflation is arbitrary and exists even if it runs counter to society’s objectives.

Here are some ways by which inflation has occurred in some countries:

-Since 1965, the United States has experienced a yearly growth of its inflation rate. But this has been limited to not more than 4 percent annually.

-The Philippines has also been experiencing a steady increase in its inflation rate in the past decades.

-Brazil experienced a hyperinflation in 1993 at the rate of more than 2000 percent, severely affecting its economy.

-In the 1920s, during one of the lowest points in German economic history, inflation was so high that price levels rose trillions of times, with common food items costing millions in their currency.

Combating Inflation

There are ways by which inflation may be limited to acceptable levels.

At the highest level, countries can set up fiscal and monetary policies that can effectively counter inflation or inflationary tendencies.

At the level of the individual, consumers should be more conservative and careful in the use and consumption of resources, and should practice selective buying.

Deflation

Deflation is a fall in the average level of prices in the economy, or some reduction in the level of economic activity. As government executes measures to counter inflation, such as an increase in interest rates and taxes and a decrease in the money supply and government spending, then deflation may occur.