DUE10012 – COMMUNICATIVE ENGLISH 1

Semester 1, June 2019 Sessionq

Assessment Assignment (Group) 30%

LECTURER : MISS DAYANG NURDIYANA ABDUL HAMID

NAME MATRIC NO

REONEIL ROMIE 07DKM19F1073

MIXCSON JOHANIS 07DKM19F1015

HAMIZAN ANAS 07DKM19F1085

MUHAMMAD NABIL SYAUQI BIN SAPARI 07DKM19F1094

1. Introduction
Economy is surely one of the most important thing for a country but there is an issue regarding
this which is inflation. Sean Ross the author of the article titled 'When is inflation good for the
economy?' wrote that some people think that inflation is good for the economy while others do
not. This made many people mistook inflation. If this is not thoroughly explain, it will greatly
affect our economic state as it is.

2. Review

Inflation is the increase in the prices of goods and services over time. It's an economics term
that means you have to spend more to fill your gas tank, buy a gallon of milk, or get a haircut.
Inflation increases your cost of living. Inflation reduces the purchasing power of each unit of
currency. U.S. inflation has reduced the value of the dollar. Compare the dollar's value today
with that in the past. As prices rise, a single unit of currency loses value as it buys fewer goods
and services. This loss of purchasing power impacts the general cost of living for the common
public which ultimately leads to a deceleration in economic growth. The consensus view among
economists is that sustained inflation occurs when a nation's money supply growth outpaces
economic growth. To combat this, a country's appropriate monetary authority, like the central
bank, then takes the necessary measures to keep inflation within permissible limits and keep
the economy running smoothly. Inflation is measured in a variety of ways depending upon the
types of goods and services considered and is the opposite of deflation which indicates a
general decline occurring in prices for goods and services when the inflation rate falls below 0
percent.

Rising prices are the root of inflation, though this can be attributed to different factors. In the
context of causes, inflation is classified into three types: Demand-Pull inflation, Cost-Push
inflation, and Built-In inflation. Demand-pull inflation occurs when the overall demand for goods
and services in an economy increases more rapidly than the economy's production capacity. It
creates a demand-supply gap with higher demand and lower supply, which results in higher
prices. For instance, when the oil producing nations decide to cut down on oil production, the
supply diminishes. It leads to higher demand, which results in price rises and contributes to
inflation. Additionally, an increase in money supply in an economy also leads to inflation. With
more money available to individuals, positive consumer sentiment leads to higher spending.
This increases demand and leads to price rises. Money supply can be increased by the monetary
authorities either by printing and giving away more money to the individuals, or by devaluing
(reducing the value of) the currency. In all such cases of demand increase, the money loses its
purchasing power. Cost-push inflation is a result of the increase in the prices of production
process inputs. Examples include an increase in labor costs to manufacture a good or offer a
service or increase in the cost of raw material. These developments lead to higher cost for the
finished product or service and contribute to inflation. Built-in inflation is the third cause that
links to adaptive expectations. As the price of goods and services rises, labor expects and
demands more costs/wages to maintain their cost of living. Their increased wages result in
higher cost of goods and services, and this wage-price spiral continues as one factor induces the
other and vice-versa.Theoretically, monetarism establishes the relation between inflation and
money supply of an economy. For example, following the Spanish conquest of the Aztec and
Inca empires, massive amounts of gold and especially silver flowed into the Spanish and other
European economies. Since the money supply had rapidly increased, prices spiked and the value
of money fell, contributing to economic collapse.

Some people say that inflation is good because it keeps the economy from deflation but others
say that it is a haul to economic's growth. What we believe here is, it actually depends on how
high the inflation rate is. As an example if a sudden fluctuation in market prices were to happen
in a country, then it would drastically decreases the aggregate demand in market leading to a
deficit demand and excessive supply. The market will eventually have to reduce the production
of items and it will cause an increase in unemployment rate. So of course the economic state in
that country will get worse. But if the inflation rate is increasing in a moderate rate then it will
surely be accepted by most people.

To prevent the sudden price fluctuation in market, we suggest that the consumers do not spend
too much on things they do not need because this is what actually will happen. If the supply of
money is greater than the demand for money, then an irregular increase in price would happen
because the firm wants benefit. At the other side of the coin, firms or seller should annually
increase the price of the item sold to avoid from drastical change of demand from consumers.

The moral value here is that spending a moderate amount of money and also by keeping the
price affordable for people could keep the inflation from rising higher than usual.

3. Summary and Conclusion

In a nutshell, this concludes that inflation is neither good nor bad because it all depends on how
the people are using their money and how the firms or seller are acting based on the response
of the consumer. Just the two of this could affect every aspect of economy from the cost of
living, living standards and the rate of growth of economy.