Grandma University Abstract Unexpected inflation rates can happen, decreased prices in consumer goods and services happen all the time and in other times it can actually increase. It’s up to us to figure out how our financial future is going. Inflation When consumers expect an increased inflation rate statistics shows that most consumers spend more due to the fact that they know that they can get more bang for their buck before inflation rises than they would if they waited till inflation had already set in at a higher rate.
The opposite effect happens as well when people live that their inflation rate will go down. Consumers and investors will hold onto their money so that they can wait till their dollar can buy more later than it can now. Also, when there is a unexpected 3 percent fall in the price level in goods and services, most consumers will start to buy more as they can buy more now that the prices are down.
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The difference between an unexpected 3 percent fall in price and a 1 percent inflation rate when a 4 percent inflation rate was expected is that there is no difference at all, if people have a lower inflation rate and if there is a 3 percent fall n price levels then that is a great environment for consumers and investors as they will buy more products with their money instead of holding onto their savings. This is why we see housing markets interest rates being so low since after the great recession back in 2007.
Impact The economy has a cause and effect type system. If there is an action then you can bet that there will be a reaction. With costs being down and inflation down as well, the real price of resources could go up since the demand will be up. As more and more products are wanted and created the resources start to decline and when there s a decline then the price will go up due to a shortage. With this, product margins could actually be shortened. Due to the lower price, increased cost of resources that leaves the suppliers and manufacturers a smaller profit margin.
If there is a smaller profit margin then the output will be lowered thus possibly creating the initial price to go up. When prices go up less people will buy and there will be a bigger supply of the product that has not been sold leaving a loss to the company. If there is a loss to a company then the employment will go down. Initially, the employment will go up because the company will see profits and have wider margins but as supplies and resources go up and while the price goes up then profits actually start to decline.
Thus creating a gap in employment. Conclusion The economy that we have can be a little awkward at times but we have a fluctuating economy, sometimes it expands and other times it contracts while it is all time based. As things start to cost less, resources can dwindle and actually increase the price of something that was so much in demand. As we all know, if there is demand, increase he price. If there is a low demand then decrease the price as much as possible to make it a viable product for the consumer.
Unexpected fluctuations in our economy is hardly ever unexpected since what we do today will either hinder or benefit us later, it’s up to us to keep track of what is going on so that we can protect ourselves later. References Guaranty,J. (2013). Macroeconomics. (14 De. , CHI 9-10). Mason, OH: South-Western. Government and Public Goods References Guaranty,J. (2013). Macroeconomics. (14 De. , chi 5-6). Mason, OH: South-Western.