relationship between gdp, inflation and monopoly

8/16/2019 Relationship Between Gdp, Inflation and Monopoly

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RELATIONSHIP BETWEEN GDP, INFLATION AND

MONOPOLY

GDP: Gross domestic product (GDP) is the monetary value of all the

nished goods and services produced within a country's borders in aspecic time period. Though GDP is usually calculated on an annual basis

it can be calculated on a !uarterly basis as well.

GDP is commonly used as an indicator of the economic health of a

country as well as a gauge of a country's standard of living. GDP can be

used to compare the productivity of a country with a high degree of

accuracy. "d#usting for in$ation from year to year allows for the seamless

comparison of current GDP measurements with measurements from

previous years or !uarters.

%n this way a nation&s GDP from any period can be measured as apercentage relative to previous years or !uarters. hen measured in this

way GDP can be traced over long spans of time and used in measuring a

nation&s economic growth or decline as well as in determining if an

economy is in recession. GDP&s popularity as an economic indicator in part

stems from its measuring of value added through economic processes. or

e*ample when a ship is built GDP does not re$ect the total value of the

completed ship but rather the di+erence in values of the completed ship

and of the materials used in its construction.

Gross domestic product can be calculated using the following formula,

GDP - / G / % / 01

here is e!ual to all private consumption or consumer spending in a

nation's economy G is the sum of government spending % is the sum of

all the country's investment including businesses capital e*penditures

and 01 is the nation's total net e*ports calculated as total e*ports minus

total imports (01 - 2*ports 3 %mports).

Infation: %n$ation is dened as a sustained increase in the general level

of prices for goods and services. %t is measured as an annual percentage

increase. "s in$ation rises every dollar you own buys a smallerpercentage of a good or service.

The value of a dollar does not stay constant when there is in$ation. The

value of a dollar is observed in terms of purchasing power which is the

real tangible goods that money can buy. hen in$ation goes up there is

a decline in the purchasing power of money. or e*ample if the in$ation

rate is 45 annually then theoretically an "67 pac of gum will cost

"67.84 in a year. "fter in$ation your dollar can't buy the same goods it

could beforehand.

Causes o Infation


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Demand3Pull %n$ation 3 This theory can be summari9ed as :too much

money chasing too few goods:. %n other words if demand is growing

faster than supply prices will increase. This usually occurs in growing

economies.

ost3Push %n$ation 3 hen companies' costs go up they need to increaseprices to maintain their prot margins. %ncreased costs can include things

such as wages ta*es or increased costs of imports.

Mono!o"#, " monopoly is a maret structure in which there is only one

producer;seller for a product. %n other words the single business is the

industry. 2ntry into such a maret is restricted due to high costs or other

impediments which may be economic social or political. or instance a

government can create a monopoly over an industry that it wants to

control such as electricity. "nother reason for the barriers against entry

into a monopolistic industry is that oftentimes one entity has thee*clusive rights to a natural resource. or e*ample in


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demand side shoc could be due to several factors such as nancial

crisis rise in interest rates or fall in asset prices (lie houses)

Infation *ue to Mono!o"#, %n$ation by denition is :a rise in the

general level of prices of goods and services in an economy over a period

of time:. hile it could #ustiably be said that it is caused by a monopolyownership (he who has the supply has the power) it doesn't need to be

#ust one person holding the item in demand.

hen a monopoly occurs they have total control over the prices of the

product. %f there is no competition then the monopoly will rise the price so

they can ma*imi9e prot which will cause in$ation.

relationship between gdp, inflation and monopoly

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