EFFECT OF INFLATION ON THE ECONOMY
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EFFECT OF INFLATION ON THE ECONOMY
ABSTRACT
Generous inflow is a big subject that is unavoidable in the language. It continues to rise in the community’s overall price cover. It might also be described as a circumstance with a few geese.
It could also be described as a location. Or where there is a complete loss of purchasing power in naira currency. In this section, we will focus on the effects and causes of inflation in Nigeria.
The group information for the project, such as acquiring data from the early 1980s to the present.
At the completion of this project, the group will appear to have generated a well-designed and appreciable endeavour.
INTRODUCTION TO CHAPTER ONE OF THE EFFECTS OF INFLATION ON THE ECONOMY
The problem is stated.
Inflation is characterised by increased prices for goods and services. According to Onah (2005), this works the quantity and type of items (goods and services) available to individuals and corporate bodies at any given time.
The issue caused by this is that individuals and corporate organisations in society are unable to purchase the desired number of goods during inflation.
During periods of inflation, income earners, particularly those on fixed incomes and the very poor, find it difficult to keep up with rising prices of goods and services. This will continue as long as prices rise and purchasing power falls. The standard of living must be raised.
be emphasised.
Individuals require more money values for the purchase of desired goods during an inflationary period as opposed to regular economic conditions. This results in a decrease in purchasing power. This causes a dilemma since consumers’ ability to purchase “products” becomes limited as prices continue to rise.
Also important are the issues of inflation, which is increasing the varied society’s want income as a differentiation element. There is a significant disparity in income between foxed income earners and profit earners. This is because, as opposed to fixed income earners, income profit earners rise with rising product prices.
It is also worth noting that during an inflationary time, savings fall. Because of increasing product costs, people are more likely to spend more of their money.
This causes a problem since a lack of savings leads to a lack of investment, which slows economic growth.
The key concerns to consider are how individuals will be able to purchase the desired mix of products. How will those on fixed incomes sustain their standard of living during a period of continual price increases?
How does a poor man make both and make ends meet in an era of declining purchasing power? How will the government overcome the income gap between fixed and profit earners?
1.2 IMPLICATIONS OF THE STUDY
The study’s rationale is vital for Nigerians to understand the effects of inflation in an economy.
As we now understand what inflation is and the impact it has on an economy, we must battle it aggressively to keep it from entering ours. If it does, the economy will suffer greatly as a result.
Inflation has a negative impact on even fixed-income earners, as a staff or public servant with a fixed amount of money as salary will never be able to cover all of his needs due to inflation. We all know that an inflationary era in an economy occurs when there is too much money in circulation chasing too little commodities.
Once this misery occurs in our economy, our investors will be unable to invest again, and because they will be unable to invest, the economy will regress and individuals’ standard of living will fall.
In an economy when inflation exists, there is always a decline in production, and when there is a decrease in production, people involved in the production process are unable to create, which leads them to invest or save. When they are unable to save their resources, the financial industry suffers.
To regulate or avoid the occurrence of inflation in our economy, I propose that our government increase revenue, modernise technology, raise bank rates, apply effective control measures, and so on.
SIGNIFICANCE OF THE STUDY
The study’s significance stems from the fact that an examination of the meaning, causes, and types of inflation, as well as the impacts of inflation on individuals and corporations, will provide a more realistic picture of how the population as a whole is affected.
It is hoped that this study will reveal the pain of individuals and corporations to policymakers, allowing them to devise the most effective measures for dealing with inflation and improving the quality of life for all citizens.
Students in financial studies will find it extremely useful as a foundation for further research.
Expose regular men to the reasons for their low standard of living. Assist unit of government planning by providing more efficient feedback on the effectiveness of their anti-inflationary initiatives.
It will assist individuals and businesses in developing their marketing mix for their items. It will assist the IMF in advising Nigerians on how to combat the effects of inflation.
1.3 BACKGROUND OF THE STUDY
Inflation is not a new phenomenon in the Nigerian economy or the world at large. There have been fluctuations in magnitude or rats in existence.
Between 1969 and 1970, the rate of inflation in Nigeria was around 10%. Prices soared by around 14% in 1970 (right after the election), then dipped to 3% in 1972, surged by about 16.1% in 1974, and increased by nearly 34% in 1975. Inflation appeared to be the most difficult task confronting government policymakers in the 1970s.
The inflationary trend in Nigeria from 1973 to 1985 can be shown visually;
40
30
20
10
0
73 74 75 76 77 78 79 80 81 82 83 84 85
Using the following official inflation rate numbers for 40% 1973 to 1985, inflation stood at 40% in 1989, with the lowest figure for the time being 6% in 1973. In 1974, inflation was around 13% before the Udoji pay award the same year, only to skyrocket to 34% in 1975, owing primarily to the award.
It steadily decreased until it reached 10% in 1080. It skyrocketed to almost 22% in the following years before falling back to 7% in 1982. This was reversed in 1983 when it shot up to 24% and reached an all-time high of 39% in 1984.
The inflationary trend continued from 1985 and reached an excruciating level on September 29, 1986, when the structural adjustment programme was implemented, giving birth to the second foreign exchange market (sffm).
Since the introduction of the sftm, the value of the naira has been reduced to next to nothing, escalating inflation in Nigeria to unimaginable levels.
Official inflation numbers, on the other hand, are known to significantly understate the true inflation rate. Nonetheless, they provide as a rough clue to the country’s inflationary activities.
Evidence has revealed that inflation persists in both wealthy and developing countries, with differences in magnitude or rates, but making do with the current condition.
Rates in poor countries are higher than in developed countries. The aforementioned rates were obtained during the seventeenth and early eighteenth centuries (1799-1807), as well as the early mid-nineteenth century (1969-1975).
(1) Inflation merely refers to a continuous upward trend in the general price level; inflation does not imply that all prices are growing, nor that all prices are rising at the same rate.
(2) It is a process in which paper money loses its value; this depreciation is quantitatively reflected in an increase in prices. The faster a country’s prices grow, the faster its currency loses purchasing power on the internal market and, through specific connecting links, on the global market as well.
(3) Inflation is defined as a constant rise in the price of goods and services as a result of a large amount of money in circulation being used to trade the few available commodities and services.
Furthermore, the high price of imported goods as a result of a surge in overseas prices and the unpredictability of the international currency rate.
Subsidies for port congestion, storage facilities, marketing arrangements, and the distribution network, the influence of the second-tier foreign exchange market, and the elimination of oil subsidies.
Since the removal, the price of oil has risen, and this has resulted in price increases for most things, with the increase in transport fare being a living example.
At this point, it is important noting that all of these concerns have resulted in an accelerated increase in aggregate demand that has not been matched by an appropriate expansion in domestic output and imports of goods and services.
In conclusion, if inflation affected everyone in the same way and to the same degree, it would be meaningless; its social significance stems from the reality that it always affects people differently.
Its impact on personality, income and family background corporation, source of income, and so on, as well as their locations, whether in the neighbourhood or in the city, are relevant to the study.
1.4 DEFINITION OF TERMS
i. OPENING AND SUPPRESSING INFLATION
The continuous operation of the market mechanism results in open inflation. There are no limitations on commodity distribution by the government, which applies fiscal and monetary regulations to keep open inflation at bay.
STAGINFLATION (ii)
This is a circumstance in which a recession is coupled by a high rate of inflation, which is referred to as inflationary recessing. This sort of inflation is created by excessive demand in the commodities market and a drop in labour demand, which causes prices to rise and unemployment in the economy.
INFLATION OF EDMAND-PULLL
This is a condition described as “too much money chasing too few goods.” It occurs as a result of an increase in demand with a commensurate decrease/increase in supply of goods, causing the prices of these goods to rise.
iii. ARTIFICIALLY GENERATED INFLATION
This is a circumstance in which traders create artificial scarcity by heading commodities in order to raise the prices of their commodities.
INFLATION BY COST-PUSH
This is a condition in which money salaries rise faster than labour productivity. Cost-push inflation is generated by continued increases in the prices of production elements such as land, labour, capital, and entrepreneurship.
INFLATION OF MAKE-UP
This view of inflation is closely related to the price-push problem; modern labour organisations set prices and wages based on a mark-up over cost and relative income; firms with monopoly power have control over prices and thus level administered price;
when strong trade unions are successful in raising worker wages, it contributes to inflation. Following study of the forms and causes of inflation, focus is given to the effects of inflation on the Nigerian economy.
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