Review Essays

Sample Economic review Essay on Inflation

Inflation

Review of the article “The Association and Impact of Inflation and Population Growth on GDP: A Study of Developing World,” by Khan, et al, (2013)

Primarily, this article center on the discussion of effects of inflation on the economy and precisely on effects of inflation on population growth and GDP in developing nations. An overriding theme is presented in the article showing inflation has negative effects, as such, upsetting to an economy. Negative inflation effects in an economy include reduction or stagnation in disposable income, decline in individual savings and tax increases; hence, currency depreciation, increase in import prices as well as national savings. At inflation onset, the levels of income for individuals in an economy also become stagnant and they remain there as the rate of inflation intensifies.

Stagnation lead to tax increases in which case individuals get taxed a higher percentage of their income on services and good they consume. Increase in the tax bracket leads to low saving power of individuals in the economy. Additionally, individuals also save less during inflation as they are afraid their cash will diminish persistently in value at future dates. Such pessimistic perception leads to low national saving. Inflation leads to local currency to degrade value, leading to reduction of purchasing power. This makes imports more costly than exports. These negative inflation effects have great impacts on population growth and GDP in developing nations.

Generally, inflation leads to a decline in GDP growth in developing countries. As already aforementioned, inflation effects on the economy are negative. Inflation impact on individuals in saving translates to reduction in national saving. When the individuals in developing economy have a preference for saving less during recession, they reduce Proofreading-Editingthe function of saving of GDP, leading to reduction in overall growth of the national GDP. Additionally, the growth of national GDP in developing nations leads to decline during recession due to decrease of national income. Income is a GDP function; as such, when there is a decline in disposable income, national saving declines as well, reducing the national rate of GDP growth.

Depreciation of currency in the period of inflation causes decline in foreign direct investment in developing nations. Investment is a function of national GDP and as such, a decline in the investment results in decline of national GDP growth rate. National GDP growth is correlated positively to population growth. As such, decline in the national GDP it is an implication there is decline in population growth. This means during inflation, population growth is low as a result of low national GDP growth. Hard financial times that are experienced in the cause of inflation lead to negative impact on the health of individuals and life expectancy. Decline in the life expectancy and health in the course of inflation have pronounced effect on population growth in developing nations; population growth declines. This article, evidently relates to inflation since it provides a clear picture of inflation effects on the economy and precisely, effects of national GDP and population growth. This article, outlines various forms of economic components that are affected by inflation in developing nations, and how these effects translate into reduced population growth and GDP.

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References

Khan, A., Z., Yahya, F., Nauman, M. &Farooq, A., (2013).‘The Association and Impact of Inflation and Population Growth on DGP: A Study of Developing World,’ International Journal of Contemporary Research in Business, vol. 4, no. 9, pp. 903-911. Retrieved from: <http://journal-archieves27.webs.com/903-910.pdf>

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