The Inflation Rate In United States Of America Economics Essay

Inflation is a relentless general addition in the monetary values, where the value of money is falling [ REF ] . By detecting the changing rising prices rate of the US for last twosome of old ages, one of the factors that relates to this scenario is due to the addition in demand of goods and services relative to the supply. Mentioning to the figure 1 a below where P1 indicates the current monetary value, with D1 as Demand and AS as supply. When the demand addition to D2, the monetary value for the same goods and services will alter to P2 doing the merchandises more expensive. Now If we look over at the clip period from November 2010 September 2011 where there was a steady addition in the rising prices, the unemployment rate during the same clip decreased to 9 % from 9.8 % on November 2010, ensuing on the the demand of goods and services to increase to AD2, which caused the monetary value to blow up than old months. However this form does non fit the tendency when we look at the unemployment degree from September2011 to March 2012. The unemployment rate decreased by about 1 % in these six months from 9 % to 8.1 % yet the rising prices rate decreased.

Another factor that determines this tendency is the money supply by the bank. We know that when the involvement rates are low, the value of money lessenings doing for a plentiful flow of money in the market. These causes the consumers to pass more as the handiness of bank credits are easy. The chart below shows the involvement rate in US during these two old ages.

Looking at the chart above, we can see that when the rising prices rate was lifting, the involvement rates were falling. The involvement rate for the month of November in 2010 was 0.19 % , as the involvement rates easy started to diminish making the lowest rate of 0.08 % on September 2011. This resulted in the increased money supply deprecating the value of money doing consumers spend more raising the demand, which increased the rising prices rate during this month. After September 2011, involvement rate easy started to increase making 0.13 % on March, ensuing on the value of money to increase diminishing the rising prices.

Looking at the exports during this period farther clarifies this tendency. When the rising prices rate was increasing in the US, there was an addition in the export every bit good. Since the value of United State Dollars ( USD ) deprecated, there was a more demand of goods in the foreign market, doing the rise on the rising prices rate.

Question 2

The graph above shows the exchange rate of Malayan Ringgit ( MYR ) against the United States Dollar ( USD ) . As we can see from above the value of Ringgits was stronger during the month from June till the terminal of August. For the month of June the mean exchange rate was MYR 1 was equal to USD 0.33. The value of Ringgits somewhat appreciated on the month of July making an norm of USD 0.34 per Ringgit, and 0.33 for August. The value of Ringgits bit by bit depreciated for the month of September, making the lowest value of USD 0.31 per Ringgits. The last leftover months showed slightly assorted consequences. The value of MYR appreciated on October followed by deprecating on November and bit by bit increasing in December.

The market of Foreign Currency Exchange depends upon Net Exports ( NX ) and Net Foreign Investment ( NFI ) . Net Exports is the instability between the Exports and Imports of goods ; whereas Net Foreign Investment is instability between Purchase of and gross revenues of capital assets. For an economic system, Net Exports and Net Foreign Investment should equilibrate ( NX = NFI ) ~ ( DD = SS ) . The monetary value that balances this Supply and Demand is the Real Exchange Rate.

In our context whenever there is more demand of Malayan goods abroad, the demand of Malayan Ringgits on the market increases, ensuing the currency to appreciate. As the goods produced in Malaysia are being more expensive, people tend to increase the import of goods on Malaya every bit good, doing the Net Export balanced and unchanged. This consequence is explained in the graph below.

In the figure supra, as the demand of Malayan Ringgits additions from D1 to D2, it consequences an addition in the existent exchange rate from E1 to E2 every bit good, go forthing the net export intact.

In another scenario, the depreciation of the Ringgits may happen, when there is the supply of ringgits on the market is more. For illustration, when Malaya wants to buy assets on USA, it has to first exchange its currency into US dollars. When this happens the measure of ringgits on the market increases doing the exchange rate depreciate. The figure below farther elaborates this scenario.