Inflation, Its Causes and Nexus with Unemployment

Paper Info
Page count 3
Word count 826
Read time 4 min
Subject Economics
Type Essay
Language 🇺🇸 US

Causes of Inflation Emergence

  • Disproportion among a country’s goods and money supply;
  • Increasing the amount of money for large expenses;
  • Mass use of currency for credit programs;
  • The absence of mechanisms for regulating monopolists’ prices;
  • The influence of trade unions blocking wage distribution;
  • Reducing the parameters of the state’s GDP;
  • A sharp increase in taxes and duties.

Monetary Causes

  • The discrepancy between money demand and the commodity mass (Davig & Doh 2014);
  • An excess of income over consumer spending;
  • The deficiency of the state budget in conditions of need;
  • Excessive investments exceeding the possibilities of the economy;
  • Outpacing wage growth compared to production growth;
  • Unjustified expenditure of money for short-term state needs;
  • Financing the budget deficit by borrowing.

Structural Causes

  • The disintegration of the national economic structure (Nunley et al. 2016);
  • Lagging development of the consumer sector;
  • Decrease in the effectiveness of stable investments;
  • Substantial containment of the consumption growth;
  • Imperfections in the system of economic management;
  • The reduction of revenues from foreign trade;
  • Inter-sectorial imbalances caused by incompetent management.

Classification and Types of Inflation

  • Offers do not keep up with demands (Curtis, Garin & Mehkari 2017);
  • Increased growth in costs for goods production;
  • Increase in the value of goods with the same proportions;
  • Forecasted increases in prices for goods;
  • Sudden and financially unpredictable price increases;
  • Decline in production along with rising prices;
  • Changing consumer strategies in favor of specific goods.

Social Consequences of Inflation

  • Inflation leads to the redistribution of national income (Lim & Sek 2015);
  • The depreciation of money turns into additional taxes;
  • Wage growth rates are slow and sometimes unlikely;
  • The number of citizens with low incomes increases;
  • The possibilities of buying goods become less real;
  • The state cannot subsidize important social spheres;
  • Poor citizens cannot count on full-fledged support.

Relationship between Inflation and Unemployment

  • The more jobs, the higher the population’s income;
  • Increased demand for individual goods and services;
  • Decreasing numbers of all unused resources;
  • Increasing production is proportional to decreasing incomes (Khan 2015);
  • Rising prices are reduced only through unemployment growth;
  • Inflationary expectations significantly stimulate wage increases;
  • Over time, production returns to the current level.

Influence of Inflation on Incomes

  • Prices rising negatively affects purchasing power (Lim & Sek 2015);
  • Imbalance between nominal and real incomes is constantly growing;
  • Inflation affects the income of industrial enterprises;
  • Financial transactions are often stretched over time;
  • Nominal profits can quickly lose real value;
  • The need to reduce time between selling and paying;
  • The influence of inflation on incomes is undeniable.

Influence of Inflation on Price Policy and the Distribution of Finances

  • Prices rise in proportion to the growth of inflation (Khan 2015);
  • Real income of the population is taken into account;
  • The level of falling purchasing power is determined;
  • Customer orientation is a key and basic criterion;
  • Prices are formed due to the evaluation of demand;
  • Revenues of potential consumers are taken into account;
  • The lack of opportunity to forecast demand in advance.

Influence of Inflation on the Country’s Economy

  • The type and intensity of the economy is considered;
  • Inflation takes effect after the threshold of 2% (Yesikar et al. 2015);
  • It is possible to control such a mechanism;
  • The regulation of supply and demand is achieved;
  • The economy of the country is predictable;
  • Hyperinflation has serious implications for the economy;
  • The industry can degrade under the conditions of hyperinflation.

Influence on the Redistribution of National Income

  • Sources of income can be constant and variable (Davig & Doh 2014);
  • Inflation redistributes income among creditors and borrowers;
  • Interest rates play an essential role in assessing inflation;
  • Floating interest rates can protect lenders (Nunley et al. 2016);
  • The consequences are severe for people with fixed incomes;
  • Non-fixed incomes can increase faster than rising prices;
  • Inflation stimulates the creation of more products.

Methods for Reducing the Rate of Inflation

  • The behavior of market participants affects inflation (Lim & Sek 2015);
  • Attempts to decrease inflation expectations of the population;
  • Ensuring trust in public monetary policy to reduce inflation;
  • Establishing control over cash flows within the country;
  • Restrictions on the purchase of foreign currency;
  • The sale of foreign exchange assets in the country;
  • The reduction of government spending on social welfare payments.

Correct and Timely Calculation of the Index of Inflation

  • The inflation calculation formula is used to reduce it;
  • To calculate the level, the consumer price index is found (Yesikar et al. 2015);
  • Prices for some types of goods are studied;
  • The consumer price index is established by months;
  • The time interval for the calculation is chosen;
  • Goods prices are determined for an earlier date;
  • Information about prices for the selected period is studied.

Additional Ways to Solve the Problem of Inflation

  • The fulfillment of set goals for inflation;
  • Seeking help from countries with stronger economies;
  • The creation of comfortable conditions for business development;
  • A significant reduction of the state apparatus;
  • A policy on import substitution aimed at developing enterprises;
  • The reduction of costs for the purchase of goods abroad;
  • Attempts to increase export products for budget replenishment.

Reference List

Curtis, CC, Garin, J & Mehkari, MS 2017, ‘Inflation and the evolution of firm-level liquid assets’, Journal of Banking & Finance, vol. 81, pp. 24-35.

Davig, T & Doh, T 2014, ‘Monetary policy regime shifts and inflation persistence’, Review of Economics and Statistics, vol. 96, no. 5, pp. 862-875.

Khan, H 2015, ‘The impact of inflation on financial development’, International Journal of Innovation and Economic Development, vol. 1, no. 4, pp. 42-48.

Lim, YC & Sek, SK 2015, ‘An examination on the determinants of inflation’, Journal of Economics, Business and Management, vol. 3, no. 7, pp. 678-682.

Nunley, JM, Stern, ML, Seals, RA & Zietz, J 2016, ‘The impact of inflation on property crime’, Contemporary Economic Policy, vol. 34, no. 3, pp. 483-499.

Yesikar, V, Mahore, RK, Dixit, S, Shivram, G, Parmar, S & Jain, C 2015, ‘A study to evaluate inflation and price rise: effect on common man’, Journal of Evaluation of Medical and Dental Sciences, vol. 4, no. 30, pp. 5172-5178.

Cite this paper


EduRaven. (2021, November 1). Inflation, Its Causes and Nexus with Unemployment. Retrieved from


EduRaven. (2021, November 1). Inflation, Its Causes and Nexus with Unemployment.

Work Cited

"Inflation, Its Causes and Nexus with Unemployment." EduRaven, 1 Nov. 2021,


EduRaven. (2021) 'Inflation, Its Causes and Nexus with Unemployment'. 1 November.


EduRaven. 2021. "Inflation, Its Causes and Nexus with Unemployment." November 1, 2021.

1. EduRaven. "Inflation, Its Causes and Nexus with Unemployment." November 1, 2021.


EduRaven. "Inflation, Its Causes and Nexus with Unemployment." November 1, 2021.


EduRaven. 2021. "Inflation, Its Causes and Nexus with Unemployment." November 1, 2021.

1. EduRaven. "Inflation, Its Causes and Nexus with Unemployment." November 1, 2021.


EduRaven. "Inflation, Its Causes and Nexus with Unemployment." November 1, 2021.