You are on page 1of 4

Correlation between high rates of inflation and economic growth?

High inflation = high price for goods

This means that when there is high inflation money won't be able to go as far so there won't be as
much consumption.

High inflation = low rate of economic growth

• High rates of inflation slows economic growth and hyper inflation will almost destroy an
economy but even a moderate rate of deflation is also harmful. Obviously there is non
linear relationship between them and so its not appropriate to use the linear models that
are commonly used in economic so correlation is not quite the right word.

Economics works in integration. No policy can work in isolation but rather it is
how each works on the presence of another. Neither can a sector be ignored
to cater to another sector. It is estimated that systematic implementation of
the monetary policy, immaculate monitoring of debt servicing, steady check
on prices are all an ongoing process. All policies need to be devised and
implemented because it is these concerted efforts that will help to reduce
looming ratios of poverty and unemployment. All said and done, it is the
continuity of major micro and macro economic policies and proper
implementation that is the key.

The most important economic variables are as follows:
1.Gross Domestic Product
2.Agreegate Personal Income
3.Inflation
4.Deflation
5.Supply and demand of Key Inputs (For instance Oil, Gas,Fertilizers etc)
6.Interest rate
7.Agricultural production
8.Industrial production
9.Exploration of Natural Resources
10.Consumption of money
11.Consumption pattern (pattern of use of lusurious and consumer goods)
12.Unemployment rate
13.Direct foreign investment
14.Domestic investment
15.Aggregate savings and savings behaviour
16.Capital Output Ratio
17.Volume of Governmetal Loans
18.Volume of Private Loans
19.Difference between birth rate and rate of economic development
20.Volume of Liquidity or circulated money in an economy.

Dear these are only the names of economic variables. A long debate can be

there is still a great deal of competition in order to get them and use them. So if an economy switches from one resource (coal) to another. This doesn't necessarily mean that the economy does produce more of these things. For instance. As another example is the talk of increasing offshore drilling and of drilling for oil in Alaska in order to fix the United States' economy-. wars were fought over territory. then that economy will see a growth because there is a higher quality resource that can be used. . jet fuel is a more suitable fuel than coal for powering vehicles. rich soil that produces higher quality crops is worth more than soil that will produce crops that are edible but not as fertile. and there are three major factors that have more impact than others More Resources  One of the chief catalysts of a growing economy is an increase in the available resources. because kingdoms that had more land could grow more food. A simpler example is that good.edu. growing. but the increase in potential shows that the economy is. Throughout history. black. which meant that they could support a larger economy and population. in fact. Factors Contributing to Economic Growth A good way to think of economic growth is the potential for an economy to produce more goods and services.made on each variable that how it positively or negatively effect economy. There are many factors that can contribute to this growth.more resources (oil) would result in better economic growth. according to harpercollege. more efficient resource (jet fuel). Superior Resources  Another factor that can contribute to economic growth is an increase in the quality of available resources. While it isn't as common for war to be declared over resources.

Increased exports contribute to higher productivity. points out that stable prices help guide production and investment decisions. solar energy or the variety of biofuels that we do now. thus fostering stable rates of growth.Technology  An increase in technology also helps spur economic growth. Because of technology that allows us to both capture more resources and make better use of the resources that we have. noting that excessive regulation and other intrusion poses unnecessary costs on business. Pfeffenzeller writes. Oftentimes it's advanced technology that allows a society to get more or better quality resources. labor and capital. Entrepreneurs often introduce new technologies and other innovations that displace old ways of doing business. a lecturer in economics at the University of Liverpool. Rather. International Trade and Investment  Economic globalization is a modern-day reality. such as land. and rearranges them in a way that makes them more valuable. Free trade agreements and entities such as the North American Free Trade Agreement and the World Trade Organization have fueled the growth of this global economy. citing post-World War II Germany as an example. Entrepreneurship  Writing in the Concise Encyclopedia of Economics. Sound Economic Policy  A stable economic environment that fosters growth requires sound government. Austrian-born economist Joseph A. governments should employ a level of regulation that protects the economy from reckless business activity. with goods and investment capital flowing across borders at unprecedented levels. Pfeffenzeller argues that a nation's openness to international trade and foreign investment promotes growth. Dr. tidal energy. Economists since Adam Smith in the 18th century have recognized the need for government to protect property rights and enforce a system of contracts that guards against fraudulent transactions in the marketplace. Stephan Pfeffenzeller. Maintaining low inflation requires strong monetary policy that operates independently of political pressure and strives to contain inflationary pressures." Price Stability  A stable price system that holds inflation to a minimum facilitates the kind of decision making that generates economic growth. Schumpeter wrote in the early 20th century of the importance of entrepreneurs in "The Theory of Economic Development. without the technological advances of the past few decades we wouldn't have access to wind energy. For instance. . economist Paul Romer points out that growth occurs when someone takes resources. there is a great potential for economic growth. Pfeffenzeller cautions that government should assume a balanced role in its stewardship of a nation's economy. stifling economic activity. This observation highlights the importance of entrepreneurship in driving economic growth.