Modern Measures of Money
TEPO: FINANCIAL SYSTEM, MARKET AND MANAGEMENT-THE BASICS
By: Rose Marie B. Laman, Vincent Patrick B. Laman & Emiliana P. Evia
C.2008 GIC Enterprises
Introduction
According to Lloyd B. Thomas, today’s industrial nations employ fairly standard measures of money that include the volume of currency in circulation and the volume of deposits at any point in time.
Inflation and Deflation
Inflation – is a sustained increase in the price level of commodities
It is an economic disorder, which is characterized by spiralling of prices as a result of over issuance of money
This occurs when money supply increases faster than the volume of trade in the economy
For example, when the money in circulation is not properly channelled to production, the economy will have little output.
Deflation – is characterized by uncontrolled decline in the general price level as a result of undersupply of money
Because there is so much supply of money with plenty of goods available, the tendency is for prices to go down (Demand and Supply Theory???)
Both are economic disorders that may result to economic ruins if not properly and promptly attended to.
In case of inflation, if the increase in the general price level becomes uncontrollable, it will reach a point where the cost of operation and production will be more than the income from operation.
The situation will force closure of business enterprises
In deflation, if the decline in the general price level becomes uncontrollable, there will come a time when the income derived from operations will be much lesser than the cost of production
Criteria for Inflation
1. Whenever the money supply or the level of credit increase by more than 15%, which is the normal increase
2. Whenever the level of price index number is more than 10%
The basis of computation of index number is the existing level at the end of the corresponding month of the proceeding year
Price Index - A price index (plural: “price
By: Rose Marie B. Laman, Vincent Patrick B. Laman & Emiliana P. Evia
C.2008 GIC Enterprises
Introduction
According to Lloyd B. Thomas, today’s industrial nations employ fairly standard measures of money that include the volume of currency in circulation and the volume of deposits at any point in time.
Inflation and Deflation
Inflation – is a sustained increase in the price level of commodities
It is an economic disorder, which is characterized by spiralling of prices as a result of over issuance of money
This occurs when money supply increases faster than the volume of trade in the economy
For example, when the money in circulation is not properly channelled to production, the economy will have little output.
Deflation – is characterized by uncontrolled decline in the general price level as a result of undersupply of money
Because there is so much supply of money with plenty of goods available, the tendency is for prices to go down (Demand and Supply Theory???)
Both are economic disorders that may result to economic ruins if not properly and promptly attended to.
In case of inflation, if the increase in the general price level becomes uncontrollable, it will reach a point where the cost of operation and production will be more than the income from operation.
The situation will force closure of business enterprises
In deflation, if the decline in the general price level becomes uncontrollable, there will come a time when the income derived from operations will be much lesser than the cost of production
Criteria for Inflation
1. Whenever the money supply or the level of credit increase by more than 15%, which is the normal increase
2. Whenever the level of price index number is more than 10%
The basis of computation of index number is the existing level at the end of the corresponding month of the proceeding year
Price Index - A price index (plural: “price