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Economic Cooperation Chapter 2

Economic Cooperation Chapter 2

Inflation is a condition in which the price of goods and services increases steadily. continuously causing the people’s purchasing ability to decrease

Type of inflation

According to academic principles, inflation rates are divided into 3 types:

1. Mild inflation is inflation that occurs no more than 5 percent, which is considered normal and has no detrimental effect on the economy. It has stimulated economic expansion in terms of investment, production, employment and national income.
2. Moderate inflation is the inflation rate that occurs in excess of 5 ~ 20%.
The government will step in to help fix it by using monetary and fiscal measures.
3. Severe inflation is the rapid rise in prices of goods. and is widely The price level increases by more than 20% per year, causing the purchasing power of money to drop very quickly. For example, during World War 2 in Germany, China and Thailand. has printed banknotes for unlimited use thus causing severe inflation.

Cause of inflation
comes from the change in aggregate demand and aggregate supply which can be categorized into 3 main things as follows:

1. Inflation caused by an increase in aggregate demand (Demand Pull Inflation)
2. Cost-Push Inflation
3. Inflation caused by changes in the structure (Structural Inflation)

Effect of inflation

1. Effect on the need to hold money Inflation will cause the value of money to drop. because when the price of the product is more expensive The same amount of money can buy less things.
2. Impact on Government Governments often benefit from inflation, that is, inflation increases people’s monetary income. If the state collects taxes at a progressive rate will collect more taxes earn more As for state expenditures, if it is a fixed amount, such as salaries, pensions, and allowances, the state will benefit because the money is less valuable.
3. Effects on Income Distribution When inflation occurs, there will be changes in the distribution of a person’s income, for example:

1 Those with fixed or fixed income are at a disadvantage. Because the various expenses will be higher because the product is more expensive. but still monetary income
2. The debtor has an advantage while the creditor.
3 Holders of fixed monetary assets such as cash, fixed deposits, bonds, and bonds are at a disadvantage. because the money is depreciating

Deflation

Deflation refers to the situation opposite to inflation, that is, when the level of prices for general goods and services decreases gradually. This does not mean All products must be priced. and in the same proportion It may be that some products are priced higher. But when including the price of all kinds of products is the average price will be reduced from the original.

Deflation types are divided into

1. Weak deflation It is good for the economy The general market price will be slightly lower.
2. Moderate deflation It has a negative effect on the economy but is not severe. The price level of common goods in the market will fall more than weak deflation.
3. Severe deflation

Cause of deflation

1. The central bank prints too few banknotes in circulation. but the demand is high
2. People tend to keep their money too much.
3. Excessive export of foreign currency
4. The central bank’s policy enacted a law to collect excessive statutory reserves from commercial banks. until there is no money to create deposits or extend credit

Effects of Deflation
The beneficiaries of deflation are:
1. People with regular income such as salary workers retired civil servants receive pension
2. Those who have income from interest, debentures, shareholders who are creditors.
3. Those who keep money for themselves
4. Those who have income from rent The tenant has to pay the same price. because the contract has been binding

Deflation
1. Applying a monetary policy
2. Apply fiscal policy

Tight money

Tight money is a situation where there is very little money circulating in the market. while the demand for loans is high in this situation Interest rates will rise But at the same time, the expansion of investment and production has declined. It is a condition where money is scarce. The money available in the market is not enough to meet the needs of the people.
Financial tension in the banking system This is a serious problem that occurred in 1979, which actually started to appear since 1978, as can be seen from the ratio between loans. with commercial bank deposits in 1978, which were among the highest in Thai financial history. until causing serious financial stress in 1979

fixing financial strain

tight money policy which is the central bank’s policy to control or reduce the money supply and increase interest rates to reduce inflation or to increase the exchange rate between