Asian. Inflation and interest rates:
Inflation of the countries in the world happens when there is a high and persistent adverse effect on all aspects of economic life, the political and economic development of a country. In particular, the first impact is the impact of inflation on interest rates.
We have: real interest rate = nominal interest rate - inflation rate.
Therefore the rate of inflation, if desired for real interest rates the stability and positive real interest rates being means to increase with inflation. The increase in nominal interest rates would result in economies that suffered the economic downturn and rising unemployment.
B. Inflation and real income:
Between the real income and nominal income of the employee has a relationship with each other over the rate of inflation. When inflation increases the nominal income does not change, then make the real income of workers fell.
Inflation not only reduces the real value of those assets without interest but also undermine prices asset value of the profits, ie reduces the real income from profits, the profits. It is due to the tax policy of the state is calculated on the basis of nominal income. As inflation increases, the borrower increased the nominal interest rate to compensate for the higher inflation rate, although the rate has not increased.
Since then, net income (net) of the lender's income by Name ie minus the inflation rate will be reduced greatly influence the socio-economic background. As the economic recession, rising unemployment, workers' life becomes harder will reduce the confidence of the people towards the government ...
c. Inflation and income distribution inequality:
When inflation rises, the value of the currencies behalf xuang, the borrower will be beneficial in loans to speculative profit. Thus increasing the demand for loans added in the economy, pushing up interest rates.
High inflation also makes the extra money and riches, plundered used their own money and collect goods, property, casualty speculators appear, this situation makes serious imbalance bow ties - the goods on the market demand, commodity prices and higher fever. Finally, poor people have poor capital becomes more miserable. They even can not afford the essential consumer goods, while speculators have plundered goods and become clean as richer. Such inflation would likely result in the disorder tong economy and create large gap in income and living standards between the rich and the poor.
D. Inflation and the national debt:
High inflation makes the government benefit from income tax levied on the people, but the external debt ceiling will become more important. Benefit local governments, but will suffer with foreign debt. The reason is that: the inflation rate has increased and the price of domestic currency becomes depreciated faster than foreign currency calculated on individual loans.
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