This article in the economist was about inflation and how it
affects our economy. Inflation adjusts the prices that can hurt our economy
when people cannot make a salary to compete with the inflation rate. It also
hurts a country globally because it damages the currency amount when committing
with other nations. The United States has faced this issue when dealing with
global business. Over recent years the United States currency had decreased in
value. This article mainly reviews how inflation has affects the economy over
time, And how no matter what economist try to do the business cycles are
unpredictable.
This article states things that are obvious such as, a lower
inflation helps the economy because “we” as the population have more money to
circulate the system. But they are important parts. Comparing this article to
Heilbroner’s 3 big questions allows us to think critically about what we should
value and how we should value it. The first question he asks in What is
produced? He refers to goods and services.
When we account for inflation, if we increase the price of goods we then
in effect have to increase the pay of people for their service. While this
doesn’t always happen, this is the only way for people to survive.
The second question Heilbroner asks is, How is it produced?
When he refers to this he means land, labor, or capital. When inflation occurs,
it means that the cost of living
increases. For people to help themselves survive, the have to increase their
income in some way. So if a man rent out his land for $500.00 a month but the
inflation becomes bad, he might then need to increase it to $600.00 a month.
Now with a random fluctuation it is hard
to continuously adjust. Keynesian economist think that these cycles occur
independently. But adjustment cannot always be lowered after the market becomes
more stable. An example of this is housing and rent. If you rent a house and
your renter increases the house, he is probably not going to decrease it later
in life because he is earning a greater profit and knows you can pay it. This
is why inflation after periods of time are hard to adjust like the article
states.
Finally the question Heilbroner asks is for whom it is produced.
Now at first this question seems obvious. Like diapers are produced for a
mother of a new born. But when inflation comes in play there are multiple
factor that get involved. When asked for whom its produced for, the following
question or even answer would be, who can afford it and is it made to be
afforded by all or few. This article talks a lot about unemployment, and when
unemployment rate increases this 3rd question has to be reevaluated.
If incomes adjust, does a company have to reevaluate their target group, or
adjust their prices.
http://www.economist.com/economics-a-to-z/i#node-21529397
Ashby, this is a well-written article. Your evaluation of inflation and Heilbroner's three questions was a great idea. Now I would like to discuss the three questions that you considered in your articles response.
ReplyDeleteThe first question that you discussed is “What is produced?” Increasing the price of goods needs to correlate with price that people are being paid. This also goes into unemployment rate. This means that if the prices of goods inflate and the wages stay the same, we will start to see an increase in the unemployment rate.
The second question that you discussed is “How is it produced?” In the response you discussed the increasing rates of houses and rents in order to keep up with the inflation rates. Owners increase the value of their homes in order to increase their long-term profits when the inflation rates continue to rise.
The third question discussed is “For whom it is produced?” Now for this question one must look into certain products that are produced for certain reasons. For this to be answered we need to look into different types of products that were discussed during our class time together. Different kinds of products are produced for certain people. Three types of goods are inferior, normal and luxurious goods. All three of these types of goods directly correspond to increases in wages. For example, for a college student mac and cheese may be a normal good and for Donald Trump a plane may be a normal good. But a plane is a luxurious good for a college student. So depending on the amount of income a person has, certain goods are seen as different things.
So these three questions were all worked together in order to explain how the economy works through this article about inflation rates. But what did we learn from this. When inflation rates rise, the unemployment rate rises if the wages do not rise with inflation. If companies do not produce goods the most efficient way possible, inflation rates will rise and people will not be able to afford these goods. Also companies need to market their products accordingly to the correct consumer. If companies try and sell their products, like mac and cheese or spam, to people who would not purchase them, like Donald Trump, then the company would not do well and would have to raise their prices. Through all of these points we see a direct association with inflation rates and Heilbroner’s three questions.