HOW DOES INFLATION AFFECT CONSUMERS PART IX

THERE ARE TWO TYPES OF CURVES THAT DEFINES THE AGGREGATE SUPPLY SHORT-RUN AGGREGATE SUPPLY (SRAS) FOR ONE ORGANIZATION TO INCREASE ITS PRODUCTIVITY WITHOUT HAVING TO DO IT ALL FROM THE START, AND SECOND IS LONG-RUN AGGREGATE (LRAS) THAT IS USED FOR INVESTING IN SOMETHING NEW AND SETTING UP THE STRUCTURE.

THE SRAS CURVE IS POSITIVELY SLOPED AND DEFINES THE ONE-TO-ONE RATIO BETWEEN THE PRICE LEVEL AND REAL PRODUCTION, WHEREAS THE LRAS INDICATING THAT THE REAL PRODUCTION IS INDEPENDENT OF THE PRICE LEVEL. WHEN THESE CURVES ARE CONSTRUCTED THE DETERMINANTS OF THE AGGREGATE SUPPLY ARE ASSUMED CONSTANT. THESE DETERMINANTS CAN HAVE A DIRECT EFFECT ON BOTH THE CURVES OR ON ONE DEPENDING ON THE DETERMINANT FOR EXAMPLE FLOW OF NET INVESTMENT THAT YIELDS PRODUCTIVITY WILL EFFECT BOTH OF THEM AND CAUSE THE AGGREGATE SUPPLY TO SHIFT RIGHT.

WHEREAS THE HURDLES IN RAW MATERIAL ON TEMPORARY BASIS DUE TO WEATHER CONDITIONS OR DELAYS DUE TO TRAFFIC THAT EFFECTS THE PRODUCTION EFFECTS THE SRAS WHEREAS THE LRAS WILL REMAIN CONSTANT. ALSO ON THE BASIS OF CHANGES IN THE EXPECTATIONS OF THE INFLATION, SRAS MIGHT SHIFT TO THE LEFT IF THE PRODUCERS BELIEVE THAT THEY CAN SELL IT IN THE FUTURE FOR MORE PROFITS NOT EFFECTING THE LRAS.

AGGREGATE SUCH “EMPLOYEES”, IT IS A PERSON OR A GROUP OF PERSONS EMPLOYED FOR WAGES OR SALARY AT AN ORGANIZATION, ESPECIALLY AT NON-EXECUTIVE LEVEL. NUMBER OF EMPLOYEES AND THEIR WAGES PLAY AN IMPORTANT ROLE IN DETERMINING THE AGGREGATE SUPPLY OF NATION. LET’S START BY CONSIDERING A FACT THAT AGGREGATE SUPPLY WILL INCREASE WITH THE ABILITY TO PRODUCE MORE BY THE PRODUCERS, SO THUS HAVING LARGE NUMBER OF EMPLOYEES COULD RESUME IN THE GROWTH OF THE AGGREGATED SUPPLY, HOWEVER, CONSIDERING THE SECOND FACTOR THEIR WAGES IF THEY ARE BEING PAID HIGHLY OR THE WAGES EXPENSES OF COMPANY ARE HIGHER THAN THE PRICE OF THE PRODUCTION AND THE OUTPUT WILL TO THE DECREASE IN THE PRODUCTION OF THE SUPPLY.

SO IT CONSIDERED TO BE THE BEST STRATEGY BY THE ORGANIZATION TO EMPLOYEE REQUIRED NUMBER OF PEOPLE ON MODERATE WAGES TO CUT DOWN PRODUCTION COST AND INCREASE THE SUPPLY, THUS BETTER AGGREGATE SUPPLY BY SPENDING LESS. AND LASTLY CONSIDERING THE FACTOR THAT THE INCREASE OF TECHNOLOGY HAS AUTOMATED MOST OF THE PROCESSES AND DUE TO WHICH THE AGGREGATED SUPPLY HRS INCREASE OVERALL AND IS THE UNEMPLOYMENT BUT BETTER SUPPLY.

WE HAVE DISCUSSED ABOUT WHAT THE AGGREGATED SUPPLY IS AND THE MAJOR GOODS AND FACTORS AFFECTING IT AND CAN EASILY SAY THAT AGGREGATE SUPPLY IS THE ABILITY OF A COUNTRY TO PRODUCE AND FOR IN ORDER TO MEET THE REQUIREMENT AND INCREASING THE CAPITAL. REGARDING THE EMPLOYEES, IT IS TRUE TO SAY THAT THE NUMBER OF EMPLOYEES WORKING AND THEIR WAGES EFFECT THE AGGREGATE SUPPLY DIRECTLY AND DEPENDING ON HOW THEY ESPECIALLY IN ABUNDANCE CAN PROVE LESS BENEFICIAL AS COMPARED TO THE FEW HANDFULS THAT ARE REQUIRED FOR IN ORDER TO PRODUCE MORE AND KEEPING THE DEMANDS OF THE PRODUCT HIGH FOR FUTURE PRODUCTIONS.

REFERENCES HTTP://WWW.ECONOMICSONLINE.CO.UK/MANAGING_THE_ECONOMY/AGGREGATE+SUPPLY.HTML

HTTP://WWW.TUTOR2U.NET/ECONOMICS/REFERENCE/AGGREGATE-SUPPLY HTTP://WWW.AMOSWEB.COM/CGI-BIN/AWB_NAV.PL?S=WPD&H=AGGREGATE+SUPPLY+DETERMINANTS

HTTP://STUDY.COM/ACADEMY/LESSON/AGGREGATE-SUPPLY-IN-THE-ECONOMY-DEFINITION-AND-DETERMINANTS.HTML

HTTP://WWW.INVESTOPEDIA.COM/EXAM-GUIDE/CFA-LEVEL-1/MACROECONOMICS/AGGREGATE-SUPPLY-DEMAND.ASP

THERE ARE TWO TYPES OF CURVES THAT DEFINES THE AGGREGATE SUPPLY SHORT-RUN AGGREGATE SUPPLY (SRAS) FOR ON ORGANIZATION TO INCREASE ITS PRODUCTIVITY WITHOUT HAVING TO DO IT ALL FROM THE START, AND SECOND IS LONG-RUN AGGREGATE (LRAS) THAT IS USED FOR INVESTING IN SOMETHING IN SOMETHING NEW SETTING UP THE STRUCTURE.

THE SRAS CURVE IS POSITIVELY SLOPED AND DEFINES THE ONE-TO-ONE RATIO BETWEEN THE PRICE LEVEL AND REAL PRODUCTION, WHEREAS THE LRAS INDICATING THAT THE REAL PRODUCTION IS PRODUCTION IS INDEPENDENT OF THE PRICE LEVEL. WHEN THESE CURVES ARE CONSTRUCTED THE DETERMINANTS OF THE AGGREGATE SUPPLY ARE ASSUMED CONSTANT. THESE DETERMINANTS CAN HAVE A DIRECT EFFECT ON BOTH THE CURVES OR ON ONE DEPENDING ON THE ON THE DETERMINANT FOR EXAMPLE FLOW OF NET INVESTMENT THAT YIELDS PRODUCTIVITY WILL EFFECT BOTH OF THEM AND CAUSE THE AGGREGATE SUPPLY OF SHIFT RIGHT.

WHEREAS THE HURDLES IN RAW MATERIALS ON TEMPORARY BASIS DUE TO EITHER CONDITIONS OR DELAYS DUE TO TRAFFIC THAT EFFECTS THE PRODUCTION EFFECTS THE SRAS WHEREAS THE LRAS WILL REMAIN CONSTANT. ALSO ON THE BASIS OF CHANGES IN THE EXPECTATIONS OF THE INFLATION, SRAS MIGHT SHIFT TO THE LEFT IF THE PRODUCERS BELIEVE THAT THEY CAN SELL IT IN THE FUTURE FOR MORE PROFITS NOT EFFECTING THE LRAS. AGGREGATE “EMPLOYEES”, IT IS A PERSON OR A GROUP OF PERSONS EMPLOYED FOR WAGES OR SALARY AT AN ORGANIZATION, ESPECIALLY AT NO-EXECUTIVE LEVEL.

NUMBER OF EMPLOYEES AND THEIR WAGES PLAY AN IMPORTANT ROLE IN DETERMINING THE AGGREGATE SUPPLY OF A NATION. LET’S START BY CONSIDERING A FACT THAT AGGREGATE SUPPLY WILL INCREASE WITH THE ABILITY TO PRODUCE MORE BY THE PRODUCERS, SO THUS HAVING LARGE NUMBER OF EMPLOYEES.

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HOW DOES INFLATION AFFECT CONSUMERS PART VIII

ABSTRACT WE WILL START THIS ARTICLE BY DEVELOPING A CLEAR UNDERSTANDING OF THE TERMS AGGREGATE SUPPLY AND EMPLOYMENT STARTING OFF WITH AGGREGATE SUPPLY TO UNDERSTAND ITS TERMINOLOGIES AND THE FACTORS THAT ARE RESPONSE INCLINE OR DECLINE, ALONG WITH AGGREGATE SUPPLY CURVE AND UNDERSTANDING IT, THEN COMING THE TERM “EMPLOYEES” AND WHO ARE THEY BEFORE CONCLUDING EVERYTHING WE WILL DRAW A CLEAR CUT RELATIONSHIP BETWEEN AGGREGATE SUPPLY ON THE EMPLOYEES. STARTING WITH THE TERM AGGREGATE SUPPLY (AS) IT IS DEFINED AS THE TOTAL AMOUNT OF GOODS AND SERVICES (REAL OUTPUT) PRODUCED AND SUPPLIED BY AN ECONOMY’S FIRMS OVER A PERIOD OF TIME.

IT OTHER WORDS IT IS MEASURE OF VOLUME OF GOODS AND SERVICES PRODUCED EACH YEAR. THIS SUPPLY REPRESENTS THE ABILITY OF A CERTAIN ECONOMY TO PRODUCE AND DELIVER GOODS AND SERVICES TO MEET THE DEMAND.

IT CAN ALSO BE SAID THAT IS THE MEASURE OF ONE’S STATE OR NATION’S ABILITY TO PRODUCE GOODS AT EVERY PRICE LEVELS THAT IS USUALLY DESCRIBED IN A GRAPHICAL FORM. THE COMPONENTS (GOODS) THAT AGGREGATE SUPPLY CONSISTS OF ARE CONSUMER’S GOODS PRIVATE CONSUMER GOODS PRIVATE CONSUMER GOODS LIKE MOTOR VEHICLES, CLOTHES AND ENTERTAINMENT ARE SUPPLIED BY PRIVATE SECTOR. FOR A DEVELOPED ECONOMY THIS THE SINGLE LARGEST COMPONENT OF THE AGGREGATED SUPPLY.

CAPITAL GOODS SUCH AS MACHINERY EQUIPMENT AND PLANTS ARE SUPPLIED TO VARIOUS FIRM, THESE ARE SIGNIFICANT FOR IN ORDER TO INCREASE IN ECONOMY ABILITY TO SUPPLY GOODS TO THE PRIVATE SECTORS. PUBLIC AND MERIT GOODS GOOD AFTER GOING THROUGH THE TYPES OF GOODS THAT ARE INCLUDED IN THE AGGREGATED SUPPLY LETS GO OVER THE MAJOR FACTOR THAT AFFECTS THE AGGREGATED SUPPLY ALSO KNOWN AS “CETRIS PARIBUS”  THAT DEFINES THE NATIONS/STATE SUPPLY ARE THE PRICE OF THE GOODS, HAVING A MEASURE EFFECT ON THE SUPPLY OF A CERTAIN GOODS RELATED TO THEIR DEMANDS, FOR EXAMPLE IF THE PRICE OF A COMMODITY IS TOO HIGH ITS DEMAND WILL CERTAINLY BECOME LOW, SIMILARLY IF THE PRICE WILL ALSO BE MORE, THUS THE COMMODITY HAVING THE HIGHEST DEMAND WILL BE PRODUCED IN ABUNDANCE RELATIVE TO THE ONE HAVING LESSER DEMAND.

THE MORE THE PRODUCTION THE MORE THE INCREASE IN THE NATIONS AGGREGATED SUPPLY ARE THE PRICE OF LABOR FORCE, LABORS ARE A CRUCIAL PART OF ANY ORGANIZATION WITHOUT WHICH THE PRODUCTION CAN BE COMPLETELY PARALYZED, HOWEVER HAVING MORE LABORS DOESN’T ALWAYS MEAN THAT THE COMPANY WILL PROSPER IN ITS HAVING EXTRA WORK FORCE IS ALWAYS BETTER AND IT INCREASES THE OVERALL PRODUCTION, THUS IN TURN INCREASING THE OVERALL SUPPLIES BUT THE WAGES OF THE LABOR ALSO COMES INTO PLAY IF THE COMPANY STARTS OVER HIRING PEOPLE THEY WILL ALSO HAVE TO PAY EXTRA AND WILL HAVE TO RESORT TO INCREASING THE PRICE OF THEIR SUPPLY TO MEET THE EXPENSES.

PAYING MORE EXTRA WAGES IS ALSO NOT GOOD AS IT ALSO DECREASES PRODUCTION AND INCREASES EXPENSE, SO EVERY THEIR SUPPLY, WHICH BENEFICIAL FOR THE OVERALL AGGREGATED SUPPLY. PRICE OF INPUT, THE COST OF RAW MATERIALS LIKE STEEL, IRON ETC. OR THE EXPENSE OF ENERGY AND GRS REQUIRED FOR IN ORDER TO MANUFACTURE A CERTAIN PRODUCT ALSO PLAYS A KEY ROLE IN DETERMINING THE OUTPUT OF A SUPPLY, FOR EXAMPLE IF THE COST OF RAW MATERIAL IS HIGH SO DOES THE COST OF PRODUCTION THUS LIMITING PRODUCTION, BUT WHEREAS IF FOR SOME REASON THE COST OF RAW MATERIAL LIKE OIL AND FUEL DECREASES THUS IN THAT CASE THE PRODUCTION WILL INCREASE BECAUSE OF THE LOW PRODUCTION COST.

THUS IT STATES THAT THE HIGHER THEN TECHNOLOGY, THIS IS ONE OF THE MOST IMPORTANT FACTORS IN ITSELF AND CAN HAVE A SIGNIFICANT INCREASE IN THE SUPPLY DEPENDING ON THE ADVANCEMENTS AND IMPROVEMENTS IN THE OVERALL EFFICIENCY OF THE PRODUCTION. HAVING NEWER TECHNOLOGY IN PLAY NOT ONLY INCREASES THE OVERALL EFFICIENCY BUT ALSO REDUCES THE WORK TIME FOR PRODUCTION THUS INCREASING SUPPLIES, ALSO USING TECHNOLOGY MANY PROCESSES CAN BE AUTOMATED CUTTING DOWN LABOR COST AND INCREASING PRODUCTION. THUS WE CAN SAY THAT AN INTRODUCTION OF NEWER MUCH MORE ADVANCEMENT IN TECHNOLOGY IS ALWAYS GOOD FOR INCREASING THE AGGREGATED SUPPLY.

THE VALUE OF CAPITAL STOCK, IT IS THE AMOUNT OF MONEY AVAILABLE IN AN ECONOMY FOR IN ORDER TO INVEST IN BUSINESS TO PURCHASE THE NECESSARY ITEMS USED FOR PRODUCING GOODS AND RESELLING THEM FOR FUTURE PROFITS, THUS MULTIPLYING THE CAPITAL STOCKS. USING A CAPITAL STOCK, THE PRODUCING BUSINESS CAN INVEST IN BUYING MORE EFFICIENT MACHINERIES AND PAY FOR MORE WORKERS FOR IN ORDER TO INCREASE THEIR PRODUCTIONS.

 HAVING A GOOD CAPITAL STOCK IS THE AIM OF EVERY ECONOMY TRYING TO PROSPER, WITHOUT WHICH THE INVESTMENT GOES DOWN AND PRODUCTION SLOWS. SO IN SHORT KEEPING A GOOD CAPITAL STOCK FOR INVESTMENTS IS NECESSARY FOR INCREASE IN AGGREGATE SUPPLY FOR A NATION, AS IT DECREASES SO DOES THE AGGREGATE SUPPLY AGGREGATE SUPPLY CURVE AFTER GOING OVER THE FACTORS THAT AFFECT THE AGGREGATE SUPPLY NOW LET’S HAVE A LOOK AT ITS SUPPLY CURVES, WHICH SHOWS THE QUANTITY OF GOODS AND SERVICES PRODUCED BY THAT NATION OR ITS SUPPLIERS.

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HOW DOES INFLATION AFFECT CONSUMERS PART VII

REMEMBER THAT FREQUENCY OF THE DATA COLLECTED CAN BE OF VARIOUS PERIODS SUCH AS FOR A MONTH, HALF A YEAR OR A YEAR OR SO, BUT THE REGULARITY OF THE FREQUENCY IS IMPORTANT AND IT SHOULD BE MAINTAINED, FOR EXAMPLE IF THE DATA COLLECTED IS FOR EVERY OTHER YEAR OR SO IT IS BEST TO KEEP ON COLLECTING THE DATA YEAR WISE AND NOT TO SHIP ANY YEAR. STEP 3 SELECTION OF THE DEMAND FUNCTION AFTER SETTING THE VARIABLES AND THE COLLECTION OF PAST DATA, THE NEXT STEP BEFORE FINALLY COMPILING EVERYTHING IS TO DETERMINE THE COMPLETE DEMAND FUNCTION.

WHICH IS THE DEPENDENT OR THE VARIABLE THAT IS TO BE PREDICTED. THE FACTORS THAT EFFECT THIS ARE THE VARIABLES THAT WERE DEFINED IN THE FIRST STEP. THE DEMAND FUNCTION CAN BE OF LINEAR IN LOGARITHMIC FORM, BOTH OF THEM ARE DISCUSSED INDIVIDUALLY BELOW. LINEAR INVOLVES FINDING THE LINE OF BEST FITS BETWEEN TWO OR MORE VARIABLES, THUS BY INPUTTING ONE OR MULTIPLE VARIABLES OTHER VARIABLE CAN BE PREDICTED, USING A LINEAR EQUATION.

NOW CONSIDERING THE FUNCTION FORMED ABOVE IN STEP 1 AND DETERMINING ITS DEMAND FUNCTION IN THE LINEAR EQUATION FOR BELOW, ZDR = M0+M1PZ+M2Y+M3A+M4PS+M5PC WHERE, M1, M2, M3, M4 AND M5 ARE THE REGRESSION COEFFICIENTS. THESE COEFFICIENTS REPRESENT THE ELASTICITY OF DEMAND ALSO INCLUDES PRICE ELASTICITY, INCOME ELASTICITY, PROMOTIONAL ELASTICITY AND CROSS ELASTICITY OF DEMAND.

THESE COEFFICIENTS ARE RESPONSIBLE FOR THE AMOUNT OF CHANGE AS WELL AS THE NATURE OF THE CHANGE (POSITIVE OR NEGATIVE) FOR EXAMPLE IN THE ABOVE EQUATION EFFECT OF INCOME, ADVERTISEMENT AND SUBSTITUTE WILL HAVE A POSITIVE EFFECT ON THE DEMAND, WHEREAS THE PRICE OF COMMODITY A MIGHT HAVE A NEGATIVE EFFECT ON THE FUTURE DEMAND OF IT, THEN COME THE POLYNOMIAL FORMS IN WHICH THE RELATIONSHIP IS NOT A STRAIGHT LINE, NEVER THE LESS THEY CAN BE CONVERTED INTO STRAIGHT LINE BY TRANSFORMING THE VARIABLES USING LOGARITHMS INTO A STRAIGHT LINE FOR SIMPLICITY, IT IS MOST COMMONLY USED IN META MODELS FOR MECHANICAL SYSTEMS.

STEP 4 FUNCTION ESTIMATION THIS IS THE MOST IMPORTANT STEP IN WHICH THE COEFFICIENT VALUES ARE FOUND, THESE COEFFICIENTS EACH REPRESENTS THE MEAN CHANGE IN THE RESPONSE VARIABLE FOR ONE UNIT OF CHANGE WHILE KEEPING THE OTHER VARIABLES CONSTANT. THESE CAN BE EASILY DETERMINED USING THE SOFTWARE USED FOR PLOTTING THE REGRESSION ANALYSES GRAPH OR MANUALLY STANDARDIZING EACH VALUES. IT IS ESSENTIAL TO REMEMBER THAT THE VALUES OF THESE COEFFICIENTS CANNOT BE MORE THAN ONE, ALWAYS <1. 

STEP 5 FORECAST DERIVATIONS THE LAST AND THE FINAL STEP IS DERIVING THE FORECAST USING YOUR PREDICTED VALUES FOR THE COEFFICIENTS AND YOUR FUNCTION. IN THIS STEP YOU CAN ESTIMATE THE VALUES OF INCOME, PRICES, PRICES OF RELATED SUBSTITUTES, PROMOTIONAL EXPENDITURES FOR THE UPCOMING TIME USING THIS REGRESSION METHOD.

AND USING THESE VALUES AS A BAS ONE CAN ESTIMATE THE FUTURE DEMAND/SALE FOR A CERTAIN PRODUCT. REAL LIFE USES AND APPLICATIONS REGRESSION ANALYSIS HAS VERY HIGH IMPORTANCE IN VARIOUS DISCIPLINES SUCH AS BUSINESS, ECONOMICS, ENGINEERING, AND BIOLOGICAL SCIENCES FOR PREDICTING VARIOUS OUTCOMES AS A RESULT OF INFLATION.  

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HOW DOES INFLATION AFFECT CONSUMERS PART VI

STEP 3 SELECTING OF THE DEMAND FUNCTION AFTER SETTING THE VARIABLES AND THE COLLECTION OF PAST DATA, THE NEXT STEP BEFORE FINALLY COMPILING EVERYTHING IS TO DETERMINE THE COMPLETE DEMAND FUNCTION. WHICH IS THE DEPENDENT OR THE VARIABLE THAT IS TO BE PREDICTED. THE FACTORS THAT EFFECT THIS ARE THE VARIABLES THAT WERE DEFINED IN THE FIRST STEP. THE DEMAND FUNCTION CAN BE OF LINEAR OR IN LOGARITHMIC FORM, BOTH OF THEM ARE DISCUSSED INDIVIDUALLY BELLOW.

LINEAR INVOLVES FINDING THE LINE OF BEST FITS BETWEEN TWO OR MORE VARIABLES, THUS BY INPUTTING ONE OR MULTIPLE VARIABLES OTHER VARIABLE. THESE COEFFICIENTS ARE RESPONSIBLE FOR THE AMOUNT OF CHANGES AS WELL AS THE NATURE OF THE CHANGE (POSITIVE OR NEGATIVE) FOR EXAMPLE IN THE ABOVE EQUATION EFFECT OF INCOME, ADVERTISEMENT AND SUBSTITUTE WILL HAVE A POSITIVE BETWEEN THE OVEN TEMPERATURE AND SHELF LIFE OF COOKIES BAKED IN THOSE OVENS OR A COMPANY OPERATING A CALL CENTER MAY WISH TO KNOW THE RELATIONSHIP BETWEEN THE WAIT TIMES OF CALLERS AND THE NUMBER OF COMPLAINS THAT THE STRENGTH CAN BE PREDICTED AND ANALYZED USING DIFFERENT FACTORS, WHEREAS IN BIOLOGICAL SCIENCE MEASURING THE BODY MASS AND COX ENZYME ACTIVITY IN A SIMPLE OF FEW DIFFERENT SPECIES OF SMALL MAMMAL ARE ALL DONE USING EXACT SAME METHOD.

BY USING REGRESSION ANALYSIS IN VAST NUMBER OF DISCIPLINES IT BECOME EASIER TO PREDICT AND ESTIMATE THE BEHAVIOR OF THE STRUCTURE OR FORECAST THE DEMANDS OF A PRODUCT, THIS METHOD HELPS GENERATE ACCURATE RESULTS AND ANALYZE THE FACTORS EFFECTING IT DIRECTLY OR INDIRECTLY BY SUMMARIZING LARGE NUMBER OF DATA AND CALCULATING THE RESULTS, WHICH FOR IN SOME CASES ARE OF HIGH IMPORTANCE AND CAN CHANGE THE OUTCOME OF THE ORGANIZATIONS.

CONCLUSION AND SUMMARY IN THIS ARTICLE WE HAVE DISCUSSED ABOUT REGRESSION ANALYSIS AND SEEN HOW IT IS USED TO EXAMINE THE RELATIONSHIP BETWEEN TWO OR MORE VARIABLE, THE DEPENDENT (PREDICTOR) AND THE INDEPENDENT (RESPONSE) VARIABLE, AND THEN STUDIED WHY THIS METHOD IS WIDELY USED FOR PREDICTING OR ESTIMATING THE OUTCOMES IN VARIOUS FIELDS. PLUS, WE HAVE ALSO WENT THROUGH STEP BY STEP METHOD FAR CONSIDERED THE BEST TECHNIQUE FOR PREDICTING THE OUTCOME OF VARIOUS MODELS AND IS TODAYS MANAGERS BELIEVES IT TO BE AN INDISPENSABLE TOOL.

REFERENCES HHTTP://WWW.PURCHASESMARTER.COM/ARTICLES/119 HTTP://LEARNECONBIOLOGY.QUEENSU.CA/ACADEMICS/UNDERGRADUATE/RESOURCES-FOR-COURSES/ANALYZING-DATA/CORRELATION-AND-REGRESSION/ ZDA=(PZ,Y,A, PZ,PC) WHERE, ZDA = DEMAND FOR COMMODITY A PRICE OF COMMODITY A (PZ) CONSUMER INCOME (Y) ADVERTISING EXPENDITURE INCURRED ON COMMODITY Z (A) PRICES OF SUBSTITUTE (PS) PRICES OF COMPLEMENT (PC) NOTE THAT THESE VARIABLES CAN HAVE BOTH POSITIVE AND NEGATIVE EFFECTS ON THE DEMAND THAT IS THAT ARE TO BE SELECTED SHOULD HAVE A SIGNIFICANT IMPORTANCE ON THE DEMAND THAT COMMODITY AND WHEREAS THE USE OF TOO MANY VARIABLES AND UNIMPORTANT FACTORS SHOULD BE OVERLOOKED, BELOW IS AN EXAMPLE OF WHAT’S STATED ABOVE WHEN A CERTAIN BRAND OF CLOTHING IS PREDICTING THEN FACTORS SUCH AS CREDIT ACCOUNTS AND INTEREST PLAY A VITAL ROLE. ADDING EXTRA VARIABLES THAT HAS NEGLIGIBLE AFFECT OR NO EFFECTS WILL MAKE YOUR ANALYSIS COMPLICATED AND TOO MUCH WORK SO IT’S KEPT SIMPLE. 

STEP 2 PAST DATA COLLECTIONS ONCE YOU HAVE YOUR VARIABLES SET AND DETERMINED THE NEXT IMPORTANT STEP IN THE PROCESS IS THE COLLECTION OF THE PAS DATA. THE DATA THAT SHOULD BE GATHERED MUST BE WITH RESPECT TO THE VARIABLES THAT YOU HAVE DETERMINED OR SET. THE DATA COLLECTION CAN BE DONE IN TWO DIFFERENT UNIQUE WAYS DESCRIBED BELOW FIRSTLY, IT CAN BE COLLECTED WITH RESPECT TO THE POPULATION IN TERMS OF INCOME, PRICES, ETC. FOR VARIOUS TIME PERIODS. ALSO IN CAN BE COLLECTED WITH RESPECT TO INCOME AND PRICES FOR THE DIFFERENT REGIONS OF THE MARKET FOR A PARTICULAR TIME PERIOD.

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HOW DOES INFLATION AFFECT CONSUMERS PART V

REGRESSION ANALYSIS TERMINOLOGY STARTING WITH THE TERM REGRESSION ANALYSIS, IT IS A STATISTICAL PROCESS USED FOR FINDING OUT OR ESTIMATING THE RELATIONSHIP BETWEEN ONE OR MORE INDEPENDENT/PREDICTOR VARIABLES AND THE DEPENDENT/RESPONSE VARIABLE. INDEPENDENT/PREDICTOR VARIABLE THAT WE ARE TRYING TO PREDICT WHERE AS DEPENDENT/RESPONSE IS THE ONE THAT IS EFFECTING OR INDIRECTLY. MULTIPLE REGRESSION. 

ANALYSIS INVOLVES MULTIPLE VARIABLE WHICH IS SLIGHTLY ADVANCE IN TERMS OF CALCULATIONS AND DATA COLLECTIONS BUT IS CONSIDERED TO BE THE MOST ACCURATE FOR PREDICTIONS. ALL THE ESTIMATIONS ARE BASED ON THE PAST DATA AVAILABLE AND THE FACTORS THAT ARE INFLUENCING IT DIRECTLY OR INDIRECTLY. STEPS FOR REGRESSION ANALYSIS NOW LET’S GO OVER THE STEPS THAT ARE INVOLVED IN REGRESSION ANALYSIS METHOD ONE BY ONE. STEP 1 DETERMINING THE VARIABLES IS THE VERY FIRST STEP WHICH INVOLVES THE DETERMINATION OR RECOGNITION OF YOUR VARIABLES BASED ON WHICH THE FORECASTING WILL BE DONE.

LET’S CONSIDER AN EXAMPLE OF A COMMODITY AND STATE ITS VARIABLES IN TERMS OF ITS DEMAND FUNCTION BELOW REGRESSION ANALYSIS TERMINOLOGY STARTING WITH THE TERM REGRESSION ANALYSIS, IT IS A STATISTICAL PROCESS USED FOR FINDING OUT OR ESTIMATING THE RELATIONSHIP BETWEEN ONE OR MORE INDEPENDENT/PREDICTOR VARIABLES AND THE DEPENDENT/RESPONSE VARIABLE. INDEPENDENT/PREDICTOR VARIABLE THAT WE ARE TRYING TO PREDICT WHERE AS DEPENDENT/RESPONSE IS THE ONE THAT IS EFFECTING IT DIRECTLY OR INDIRECTLY. MULTIPLE REGRESSION ANALYSIS INVOLVES MULTIPLE VARIABLES WHICH IS SLIGHTLY ADVANCED IN TERMS OF CALCULATIONS AND DATA COLLECTIONS BUT IS CONSIDERED TO BE THE MOST ACCURATE FOR PREDICTIONS. ALL THE ESTIMATIONS ARE BASED ON THE PAST DATA AVAILABLE AND THE FACTORS THAT ARE INFLUENCING IT DIRECTLY OR INDIRECTLY. STEPS FOR REGRESSION ANALYSIS NOW LET’S GO OVER THE STEPS THAT ARE INVOLVED IN REGRESSION ANALYSIS METHOD ONE BY ONE.

STEP 1 DETERMINING THE VARIABLES IS THE VERY FIRST STEP WHICH INVOLVES THE DETERMINATION OR RECOGNITION OF YOUR VARIABLES BASED ON WHICH THE FORECASTING WILL BE DONE. LET’S CONSIDER AN EXAMPLE OF A COMMODITY A AND STATE ITS VARIABLES IN TERMS OF ITS DEMAND FUNCTION BELOW, ZDA = F(PZ, Y, A, PS, PC) WHERE, ZDA = DEMAND FOR COMMODITY A PRICE OF COMMODITY A (PZ) CONSUMER INCOME (Y) ADVERTISING EXPENDITURE INCURRED ON DEMAND THAT IS EXPLAINED LATER IN THE BELOW STEPS.

KNOWING HOW TO SELECT YOUR VARIABLES FOR THE DEMAND FUNCTION IS VERY IMPORTANT, THE VARIABLE THAT ARE TO BE SELECTED SHOULD HAVE A SIGNIFICANT IMPORTANCE ON THE DEMAND THAT COMMODITY AND WHEREAS THE USE OF TOO MANY VARIABLES AND UNIMPORTANT FACTORS SHOULD BE OVERLOOKED, BELOW IS AN EXAMPLE OF WHAT’S STATED ABOVE WHEN A CERTAIN BRAND OF CLOTHING IS PREDICTING THE DEMAND OF THEIR PRICED COMMODITY LIKE HOUSING IS CONSIDERED THEN FACTORS SUCH AS CREDIT ACCOUNTS AND INTEREST PLAY A VITAL ROLE. ADDING EXTRA VARIABLES THAT HAS NEGLIGIBLE AFFECT OR NO EFFECTS WILL MAKE YOUR ANALYSIS COMPLICATED AND TOO MUCH WORK SO IT’S KEPT SIMPLE.

STEP 2 PAST DATA COLLECTIONS ONCE YOU HAVE YOUR VARIABLES SET AND DETERMINED THE NEXT IMPORTANT STEP IN THE PROCESS IS THE COLLECTION OF THE PAST DATA. THE DATA THAT SHOULD BE GATHERED MUST BE WITH RESPECT TO THE VARIABLES THAT YOU HAVE DETERMINED OR SET. THE DATA COLLECTION CAN BE DONE IN TWO DIFFERENT REGIONS OF THE MARKET FOR A PARTICULAR TIME PERIOD. REMEMBER THAT FREQUENCY OF THE DATA COLLECTED CAN BE OF VARIOUS PERIODS SUCH AS FOR A MONTH, HALF A YEAR OR A YEAR OR SO, BUT THE REGULARITY OF THE FREQUENCY IS IMPORTANT AND IT SHOULD BE MAINTAINED, FOR EXAMPLE IF THE DATA COLLECTED IS FOR EVERY OTHER YEAR SO IT IS BEST TO KEEP ON COLLECTING THE DATA YEAR WISE AND NOT TO SHIP ANY YEAR.

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HOW DOES INFLATION AFFECT CONSUMERS PART IV

HOWEVER, THE LAST TIME IT OCCURRED WAS IN 2007. WALKING INFLATION IS WHEN PRICES GO UP 3-10% ANNUALLY. ANY PERCENTAGE BETWEEN THE GIVEN NUMBERS COULD DO AS LONG AS IT FORCES PEOPLE TO START STOCK SAVING IN THE ANTICIPATION OF FURTHER INCREASE IN PRICES.

THIS LEADS TO A HIGH DEMAND IN STOCK BUT A SHORTAGE IN SUPPLY WHICH INCREASES THE PRICE FURTHER FOR MORE PROFIT. GALLOPING INFLATION IS WHEN PRICES INCREASE BY 10% OR MORE ANNUALLY. THIS IS DEVASTATING FOR AN ECONOMY AS IT DRIVES OUT FOREIGN INVESTORS. ONE REASON FOR IT IS THE FLUCTUATIONS IN THE VALUE OF THE CURRENCY. INFLATION IS MEASURE ON A CONSUMER PRICE INDEX (CPI). THIS INDEX NOTES THE INCREMENT CR A DECREMENT OF PRICES OVER A SHORT OR LONG PERIOD OF TIME. CPI DOESN’T MEASURE EVERYTHING IN THE SAME BRACKET.

FOR EXAMPLE, WHILE THE PRICES OF VEGETABLES OR FRUITS MAY BE THE SAME OR FACE A SMALL INCREMENT OVER TIME, THE PRICES OF FUEL REMAIN ERRATIC. THEY SOMETIMES FACE AN INCREMENT OR A DECREMENT DEPENDING ON THE GEO-POLITICAL SCENARIOS OF THE SAID TIME. UNCONTROLLED INFLATION ALMOST ALWAYS HAS AN ADVERSE EFFECT ON THE ECONOMY OF A PERONWHO HAS A SALARY OF RS100,000 COULD GET HIS HOUSE IN ORDER BY SPENDING AROUND RS75,000 ON NECESSITIES OF LIFE AND STILL SAVE AROUND RS25,000. BUT AS INFLATION HITS THE MARKET, FOR EXAMPLE, THE PRICE OF PETROL PER LITRE INCREASES, NOW THE PERSON HAS TO PAY MORE TO GET THE SAID LITRE OF PETROL, BUT THE OTHER BASIC ACCOMMODATES OF LIFE GET EXPENSIVE AS WELL. 

TRANSPORTATION COSTS GET HIGHER WHICH LEADS TO FOOD GETTING MORE EXPENSIVE BECAUSE IT’S MORE EXPENSIVE NOW TO TRANSPORT THE VEGETABLES AND THE FRUITS FROM THEIR FARMS TO THE SHOPS AND STORES. THUS CHAIN OF EVENTS CONTINUES AND BASICALLY CREATES A HUGE BURDEN ON THE ECONOMY OF A CONSUMER WHO COULD AFFORD TO BE LAVISH BEFORE BUT NOW HAS TO BE CAREFUL IN ORDER TO SAVE FOR  THE VERY XBOX HE WAS SAVING THAT’S COINCIDENTALLY ALSO HAS GOTTEN A BIT MORE EXPENSIVE. NOW, THE EVENT MENTIONED ABOVE IS A BIGGIE FOR A CONSUMER BELONGING TO A HIGHER CLASS BUT INFLATION BECOMES A HUGE HEADACHE TO MIDDLE AND LOWER MIDDLE CLASS FAMILIES WHO JUST BARELY MAKE DO WITH THE INCOME THEY GET.

SO TO PUT IN GENERAL TERMS, INFLATION BASICALLY RAISES THE COST OF LIVING. WHAT IT ALSO DOES IS INCREASE THE POVERTY IN A COUNTRY. NOW THERE ARE MORE CHILDREN WHO GO TO SLEEP HUNGRY BECAUSE THEIR FATHER WHO WAS BARELY ABLE TO BRING BREAD AND BUTTER HOME AFTER A DAY’S HARD EARNED PAY COULD NOT AFFORD TO DO SO ANYMORE. IN ONE WAY OR ANOTHER, INFLATION IS A FACE OF LIFE. IT AFFECTS US ALL, THE CONSUMERS AND INVESTORS BOTH, AS BOTH ARE EFFECTED BY THE RISING PRICES OF RAW MATERIALS.

EFFECTS OF INFLATION ON DIFFERENT SECTS OF SOCIETY ARE OVEN BELOW.

DEBTORS AND CREDITORS WITH RISING INFLATION, DEBTORS HAVE A MAJOR GAIN WHILE CREDITORS FACE LOSE LOSSES. MONEY FACES DEVALUATION DUE TO RISING INFLATION AND THUS THE DEBTORS EASILY RETURN THE MONEY WHICH IS NOW HAVING LESS VALUE IN TERMS OF GOOD. THE REASON BEING THAT THE VALUE IS NOW LESS THAN THE TIME THEY BORROWED IT.

SIMILARLY, DUE TO DEVALUATION OF MONEY, CREDITORS HAVE THE SAME AMOUNT OF MONEY HAVING LACE FACE VALUE. THIS IS A MAJOR LOSS.

SALARIED PEOPLE

WORKERS SUCH AS TEACHER, CLERKS AND OTHER WHITE COLLAR LOSE WHEN THERE IS INFLATION. THE REASON FOR IT BEING THAT THE SALARIES ARE SLOW TO ADJUST TO INFLATION AND THUS THEY FACE TEMPORARY PROBLEMS.

FIXED INCOME PEOPLE

PEOPLE WHO DEPEND UPON PENSIONS, INSURANCES AND RENTS FACE PROBLEM TOO. THEY GET FIXED AMOUNT OF PENSIONS AND INSURANCES THAT ARE NOT ADJUSTED FOR INFLATION. THE LOWER INCOME CLASS FACE SAVER PROBLEMS DUE TO THIS.

BUSINESSMEN

BUSINESSMEN OF ALL TYPES GAIN DURING INFLATION, AS PRICES RISE, THE FACE VALUE OF THEIR INVESTMENT ALSO INCREASES EVEN THOUGH THEY HAD INVESTED LITTLE THAT WHAT THE CURRENT VALUE ALREADY IS. NOW THE INVESTORS CAN SELL THEIR PRODUCTS OR BUSINESS ON A PROFIT. ANOTHER REASON FOR PROFIT CAN BE THAT THE RAW MATERIAL ARE GENERALLY SLOW TO ADJUST THEIR PRICES TO INFLATION. THIS MEANS THE BUSINESSMEN ARE ABLE TO BUY RAW MATERIALS CHEAPLY AND THUS ARE ABLE TO SELL OF THEIR GOODS ON PROFITS.

AGRICULTURIST

THERE ARE THREE TYPES OF AGRICULTURIST, LANDLORDS, PEASANTS AND LANDLESS WORKERS. INFLATION HITS LANDLORD AND LANDLESS WORKERS EXTREMELY HARD. ONLY THE PEASANTS GAIN A FEW AS THEY ARE ABLE TO SELL OFF THEIR STUFF FOR BETTER VALUE NOW. THIS IS BECAUSE, FOR THEM, THE COST OF SELLING IS LESS THAN

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HOW DOES INFLATION AFFECT CONSUMERS PART III

THAT SOMEONE CAN BE BANK OFFERING LOANS OR AN INDIVIDUAL OFFERING DEBTS ON INTEREST. THE AMOUNT OF MONEY BORROWED FROM SOMEONE IS DEBT. INFLATION AFFECTS BOTH THE DEBTOR AND THE CREDITOR DURING THE PERIOD OF PRICE INFLATION, THE CREDITOR IS AFFECTED THE MOST. SINCE THE PRICES INCREASES, THE VALUE OF THE AMOUNT GIVEN BY THE CREDITOR TO THE DEBTOR WILL DECREASE. THIS HELPS THE DEBTOR AS HE IS PAYING BACK LESS AMOUNT MONEY AND THE CREDITOR IS GETTING LESS AMOUNT OF MONEY. FOR EXAMPLE, IF SOMEONE BORROWS $1,000 IN 2016 INFLATION HITS IN THE NEXT COUPLE OF YEARS MAKING THE VALUE OF THAT $1,000 TO DETERIORATE TO $000 DUE TO INCREASE IN PRICES. BUT IN THE CASE OF WAGE INFLATION, BOTH THE CREDITOR AND DEBTOR ARE BENEFITED.

THE CREDITOR HAS POWER TO PAY BACK QUICKLY DUE TO AN INCREASE IN INCOME. ON THE OTHER HAND, THE DEBTOR WILL BE RECEIVING MONEY BACK QUICKER. SO IN SOME TIMES INFLATION DOES HELP IN GENERAL, CONSUMERS ARE AFFECTED BY THE INFLATION IN MANY WAYS. BUT THE IMPORTANT PART IS HOW THE CONSUMERS CAN MAINTAIN THEIR STANDARD OF LIVING DURING THE PERIODS OF INFLATION. SOMETIMES INFLATION IS GOOD FOR THE ECONOMY AS INFLATION AND DEFLATION HELP REGULATE PRICES OF GENERAL PRODUCTS. WHEN THE PRICES INCREASE BY TOO MUCH, AGGREGATE DEMAND FALLS RESULTING IN THE PRICES TO FALL AS WELL, THIS IS WHERE DEFLATION HAS TAKEN PLACE. WHEN THE PRICES DECREASE, THE DEMAND IS INCREASED.

SUCH DEMANDS ARE HARD FOR THE SUPPLIER TO MEET, SO THERE IS AN INCREASE IN THE PRICES RESULTING IN INFLATION. FOR A STRONG ECONOMY, THIS CYCLE SHOULD CONTINUE TO KEEP THE DEMAND AND SUPPLY STEADY, INCREASE THE PRODUCTION AND MAKE THING EASIER FOR DEBTORS. EACH YEAR WE SEE THAT THE PRICES OF THE GOODS AND SERVICES GET HIGHER. THE PRICE OF PETROL IN 2008 WAS AROUND RS80 IN 2013, AFTER AROUND 5 YEARS, THE PRICE HAD RISEN TO RS105. THIS ANNUAL (OR MONTHLY DEPENDING ON HOW WE MEASURE IT) INCREASE IS KNOWN AS INFLATION. TO UNDERSTAND THE EFFECTS OF INFLATION ON CONSUMER, WE MUST FIRST GET INTO WHAT INFLATION REALLY IS. INFLATION IS THE SUSTAINED INCREASE IN THE PRICES OF GOODS AND SERVICES IN AN ECONOMY OVER A PERIOD OF TIME. IF COULD BE AN INCREMENT MEASURED MONTHLY OR YEARLY. IT USUALLY HAS A VERY REVERSE EFFECT ON THE ECONOMY OF A PERSON AND A COUNTRY.

THERE ARE 5 TYPES OF INFLATION, HYPERINFLATION, ASSET INFLATION, CREEPING INFLATION, WARNING INFLATION AND GALLOPING INFLATION. HYPERINFLATION IS THE WORST TYPE. IT’S WHEN PRICES RISE MORE THAN 50% A MONTH. IT’S VERY RARE BUT IT HAS HAPPENED. SINCE MOST OF THE ECONOMIES ARE NOT FULLY BACKED BY EITHER GOLD OR SILVER, THE ECONOMIES ARE THEN RUN ON FLAT MONEY, WHICH MAKES IT EASIER TO MANIPULATE INFLATION DUE TO SEVERAL REASONS MOTIVATED EITHER POLITICALLY OR ELSE. ONE SUCH EXAMPLE IN HISTORY COULD BE IN THE FORM OF INDONESIA OR GERMANY. IN 1928S, GERMANY WAS STRUCK BY HYPERINFLATION.

SINCE GERMANY HAD LOST THE WORLD WAR 1, THE VICTORIOUS NATIONS ASKED IT FOR COMPENSATION OF THE LOSSES THEY FACED DURING THE WAR AT THE HANDS OF THE GERMAN. THE GERMS COULDN’T PAY THEM BACK IN GERMAN CURRENCY BECAUSE OF ITS SUSPECT DUE TO PREVIOUS MASS BORROWING SO THE GERMANS MASS PRINTED THE THEIR PAPER NOTES WHICH LED TO A DEVALUATION OF THEIR CURRENCY WHICH IN TURN LED TO HYPERINFLATION IN THEIR COUNTRY. ASSET INFLATION IS THE MILDEST AND OCCURS VERY OFTEN. ONE SUCH EXAMPLE COULD BE THAT THE PRICES OF VEGETABLES AND FRUITS SO UP EVERY YEAR. THIS IS DUE TO THE ANTICIPATION OF RISING DEMAND. CREEPING INFLATION IS WHEN PRICES RISE BY A FIXED AMOUNT ANNUALLY. IT’S SOMEWHAT COMMON.

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HOW DOES INFLATION AFFECT CONSUMERS PART II

DEMANDING INFLATION IS CASED WHEN THE INCREASED DEMAND FOR A CERTAIN GOOD IS NOT IMMEDIATELY MET. THERE CANNOT BE A RISE IN SUPPLY TO MEET THE RISE OF DEMAND RESULTING IN THE EQUILIBRIUM TO BREATH. A GOOD EXAMPLE FOR THIS IS THE DEMAND FOR WHERE-BASED GOODS THAT ARE USUALLY THE BASIC NEED OF A CONSUMER. WHEN THE DEMAND OF WHERE BASED GOODS INCREASE, THE SUPPLIER OR PRODUCER IS UNABLE TO MEET THE DEMAND IMMEDIATELY. THIS RESULTS AS AN INCREASE IN PRICES OF WHEAT-BASED PRODUCTS TILL THE TIME THE DEMAND IS MET DEMAND-PULL INFLATION AFFECTS THE ECONOMY AS A WHOLE.

WHEN THE ECONOMY IS AFFECTED BY THE COST-PUSH AND DEMAND-PULL INFLATION, COST OF LIVING IS AFFECTED DIRECTLY. CONSUMER PURCHASING POWER IS DAMAGED. INCOME REMAINS THE SAME BUT PRICES RISE RESULTING IN CHADS. INFLATION ALSO CAUSES FALL IN INCOME AS THE COST OF PRODUCTION INCREASES, MANY COMPANIES REDUCE THE WAGES TO MEET THE COST OF PRODUCTIONS. CONSUMERS ARE AFFECTED IN EVERY WAY. ON THE OTHER HAND, WHEN PEOPLE DEMAND AN INCREASE IN THEIR WAGES AND PAYS, THE UNIT COST PER LABOR INCREASES RESULTING IN THE DECREASE OF BUSINESS PROFITS. HOW DOES INFLATION AFFECT CONSUMERS?

THERE ARE MANY WAYS INFLATION AFFECT THE CONSUMER. SOME OF THEM ARE AS FOLLOWS DECREASE IN PURCHASING POWER DAMAGES INVESTMENTS REDUCED SAVING EFFECT ON DEBT DECREASE IN PURCHASING POWER COST-PUSH INFLATION CAUSES THE PRICES OF GOODS AND SERVICES TO BECOME HIGHER THAN NORMAL. THIS INCREASE CAUSES THE PURCHASING POWER OF MANY TO DECREASE, HENCE AFFECTING THE CONSUMERS DIRECTLY WITH A FIXED YEARLY INCOME ARE AFFECTED MORE TO THOSE WHO ARE RUNNING A BUSINESS AND DO NOT LIVE ON A FIXED INCOME. BUSINESS ORIENTED PEOPLE KNOW HOW TO ADJUST FINANCIAL LIFE, YOU NEED A 5% INCREASE IN YOUR YEARLY INCOME. THE HARD PART IS TO INCREASE YOUR YEARLY INCOME. INFLATION DAMAGES YOUR LIFESTYLE IF IT INCREASES FOR A LONG TIME PERIOD DAMAGES INVESTMENTS CONSUMERS MAKE AN INVESTMENT WITH A HOPE THAT THE ASSET OR SHARE WILL GENERATE AN INCOME FOR THEM. CONSUMERS MAKE INVESTMENTS ONLY TO HAVE MORE THAN ONE INCOME STREAM. ALSO, RISE IN PRICES OF GOODS OR THE OVERALL COST OF LIVING FORCES THE CONSUMERS TO INVEST IN BUSINESS, STOCKS ETC. 

INVESTMENTS CAN ALSO BE IN FORM OF BUYING REAL ESTATE, WHICH WILL INCREASE ITS VALUE OVER TIME. BUT INFLATION CRASHES THE DREAMS OF INVESTORS AND DESTABILIZES THEIR FINANCIAL SYSTEM. FOR EXAMPLE, IF YOU HAVE INVESTED MONEY AT AN INTEREST RATE OF 3% AND THERE IS A RISE IN INFLATION BY THE SAME RATE OF 3%, YOU WILL BE EARNING NOTHING OUT OF YOUR INVESTMENT. BUT IF THE INFLATION RISES EVEN MORE THAN 3% YOUR INVESTMENT WILL RESULT IN LOSS. THIS IS HOW INFLATION EFFECTS THE INVESTMENT OF A CONSUMER. REDUCED SAVINGS MAKING SAVINGS FROM A FIXED INCOME IS ONLY POSSIBLE WHEN YOU HAVE ENOUGH THOUGH OUT THE MONTH INFLATION AFFECTS A CONSUMER’S SAVING.

WITH THE INCREASE IN PRICES OF GOODS AND SERVICES, A CONSUMER’S INCOME IS MAY BE USED UP COMPLETELY AND QUICKLY, LEAVING NOTHING. IN SOME CASES, A CONSUMER MIGHT HAVE TO WITHDRAW FROM THE PREVIOUSLY MADE SAVINGS TO FULFILL THEIR NEEDS. INFLATIONS DEMOTIVATES THE CONSUMER TO SAVE MONEY AS THE PRICES ARE HIGH AND THERE IS NOTHING MUCH TO SAVE. SUCH LONG TERMS PERIODS MAY LEAD YOU TO A LOWER STANDARD OF LIVING AND BY THE TIME YOU RETIRE, YOUR BANK ACCOUNT MAY END UP HAVING INSUFFICIENT SAVINGS. EFFECT ON DEBTS WHEN A CONSUMER WANTS TO MAKE A LARGE PURCHASE BUT DOES NOT HAVE THE REQUIRED FUNDS FOR IT, THEY BORROW MONEY FROM SOMEONE. 

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HOW DOES INFLATION AFFECT CONSUMERS

HOW DOES INFLATION AFFECT CONSUMERS? WHEN THE PRICES OF CONSUMERS GOOD IN THE MARKET INCREASE, IT IS THAT POINT IN A CONSUMER’S LIFE WHEN THEY REALIZE THAT INFLATION HAS HIT THE ECONOMY. THIS POINT MAKES THEM THINK PHILOSOPHICALLY THAT WITH THE RISE IN PRICES OF GOODS, THERE SHOULD BE AN EQUAL RISE IN THEIR SALARIES, WAGES OR INCOME, TO BALANCE OUT THE EQUATION. WELL TO THINK LIKE THIS MAY BE SATISFYING BUT THIS DOES NOT HAPPEN REAL WORLD. WHAT HAPPENS IS THAT THE PRICES OF GOODS AND SERVICES GO HIGH BUT A CONSUMER’S MONTHLY OR YEARLY INCOME REMAINS THE SAME. THIS CAUSE THE BUYING POWER OF MONEY TO REDUCE. 

THE BUYING POWER OF MONEY DECREASES AND THE PRICES OF GOODS INCREASE IN THE MARKET, WHICH IS ALLOW TO INFLATION.  WHAT IS INFLATION? NO ECONOMICS, THE RATE AT WHICH THE OVERALL LEVEL OF PRICES FOR GOODS AND SERVICES IS INCREASING RESULTING IN THE BUYING POWER OF MONEY TO DECREASE IS KNOWN AS INFLATION. INFLATION IS THE OPPOSITE OF DEFLATION WHERE THE PRICES OF GOODS DECREASE RESULTING THE IN BUYING POWER OF MONEY TO INCREASE. BOTH INFLATION AND DEFLATION ARE CLOSELY LINKED TOGETHER AND HAVE AN EFFECT ON THE CONSUMER INFLATION CAN BECOME VERY TRICKY.

THIS IS BECAUSE THE PRICES OF BASIC NECESSITIES OR THE PRICES OF GOOD YOU GENERALLY NEED INCREASE AT A VERY SLOW PACE MAKING IT UNNOTICEABLE. ON THE OTHER HAND, HYPERINFLATION IS A TERM USED WHEN PRICES OF GOODS INCREASE TO VERY HIGH LEVELS MAKING IT NOTICEABLE AND DIRECTLY AFFECTING THE CONSUMER’S COST OF LIVING. HOW TO MEASURE INFLATION? THE CONSUMER PRICE INDEX (CPI) IS COMMONLY USED TO MEASURE PRICE INFLATION. THE SURVEYS OF THE WEIGHTED AVERAGE OF RELATIVELY FIXED SET OF GOODS AND SERVICES, SUCH AS FOOD, TRANSPORTATION, AND EDUCATION MEDICAL CARE IS KNOWN AS CONSUMER PRICE INDEX. THE CALCULATION OF CPI DETERMINES THE RATE OF INFLATION. THE CPI TAKES A FIXED SET OF GOODS AND EXAMINES THE CHANGES IN PRICE FROM YEAR TO YEAR. THE INCREASE IN PRICES INDICATES THAT THERE IS PRICE INFLATION. THEN THERE IS THE EMPLOYMENT COST INDEX, WHICH IS USED TO MEASURE WAGE INFLATION. THIS SHOWS HOW THE FLUCTUATION IN THE COST OF LABOR OVER A PERIOD OF TIME.

THE DIFFERENCE BETWEEN INFLATION AND COST OF LIVING AS DISCUSSED EARLIER, WE NOW KNOW WHAT INFLATION IS AND HOW IT IS MEASURED COST OF LIVING AND INFLATION ARE TOTALLY DIFFERENT FROM ONE ANOTHER BUT PEOPLE THINK OF BOTH AS SYNONYMOUS TO EACH OTHER. COST OF LIVING IS SOMETHING TO WORRY ABOUT MORE. THE MONEY NEEDED TO ACHIEVE A STANDARD OF LIVING BY FULFILLING BASIC EXPENSES SUCH AS FOOD, HOUSING, HEALTH CARE AND TAXES IS KNOWN AS THE COST OF LIVING. COST OF LIVING HELPS DIFFERENTIATE BETWEEN THE EXPENSES OF BASIC NEEDS IN ONE CITY TO THE OTHER. CAUSES OF INFLATION WHEN THERE IS A FAST RISE IN WAGES, THE COST OF PRODUCTION INCREASE PRODUCTION CAUSES THE PRICES OF FINISHED GOODS TO RISE. THE BEST EXAMPLE IS THE RISE IN PRICES OF OIL.

RISE IN THE PRICES OF OIL DIRECTLY AFFECTS THE ECONOMY. MAJORITY OF PRODUCTION PROCESS USE OIL AS A PRIMARY RAW MATERIAL, HENCE, WHEN THE OIL PRICES ARE INCREASED, COST OF PRODUCTION RISES RESULTING IN THE INCREASE OF PRICES OF GOODS. THIS CAUSES THE GENERAL RISE IN PRICES OF GOOD IN THE MARKET AND IS KNOWN AS COST-PUSH INFLATION. THEN THERE IS DEMAND-PULL INFLATION.

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