Unexpected Costs
UNEXPECTED COSTS
Grantham 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 believe 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. 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 in 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 is 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
Grantham 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 believe 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. 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 in 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 is 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
References: Gwartney, J. (2013). Macroeconomics. (14 ed., ch 5-6). Mason, OH: South-Western.