Monetary Inflation Analysis

Inflation is one of the most prominent macroeconomic problems for most developed and developing countries because of its dire effects on the economic, social, and political levels.

Economists propose solutions and policies necessary to confront inflation and study quantitative methods through which it can be avoided by anticipating its developments in advance using the best and latest known techniques in economic measurement to discover its trends.

Therefore, economic analysis has focused on the factors that govern the level of national money income, especially regarding the propensity to consume, the rate of interest, and the marginal efficiency of capital.

Thus, economists have defined inflation as a significant and continuous increase in aggregate demand over actual supply volume, which leads to a series of sudden and continued rises in the general level of prices of tradable goods.

Therefore, monetary analysis of inflation shows that the relationship between aggregate demand and aggregate supply does not depend on national spending plans on the one hand and national production plans on the other, or more accurately, it depends on the relationship between investment plans and savings plans.

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The relationship between inflation and the standard of living

Inflation is an economic problem that affects the economies of developing and developed countries alike, and the impact of inflation on the economies increases whenever the appropriate environment is provided for the growth of inflationary pressures in the economy, which depends in its impact on a group of factors and variables that contribute to feeding inflationary pressures and pushing local price levels to rise.

Inflation is known as the continuous and noticeable rise in prices in a country, with the increase in the size and rates of inflation within the economy, it was necessary to note its impact on the standard of living of individuals within the community and the desire to see and recognize the impact of inflation on the standard of living.

Therefore, it was necessary to address the phenomenon of inflation and the link between the rate of inflation and the budget deficit or to evaluate the impact of the use of monetary and financial policies in targeting and combating inflation. Therefore, we found that the necessity of studying and analyzing the social effects of inflation through the following variable (inflationary trends and their repercussions on the standard of living) It is done through:

-Recognizing the impact of inflation on standards of living within the community.
-Knowing the effect of inflation on wages and unemployment rates.
-Its impact on the poverty rate within society. Knowing the means to combat inflation. The deterioration of purchasing value, especially after the flotation decisions. The slowdown in the rate of growth within the economy.

 

Economic growth and its relationship to the rate of inflation

The reality of the standard model in economic growth and development and the extent to which inflation reflects on economic performance and its growth rates, it was necessary to determine the nature of the relationship between inflation and its rates and the rate of economic growth, then analyze it and then design and present a criteria model to estimate the impact of inflation on the rate of economic growth.

There is a causal relationship between inflation rates and the rate of economic growth, as well as the lack of a significant impact of exports and imports of goods and services on the rate of economic growth, and the impact of inflation on economic growth rates, so it is necessary to work on reducing government consumption and rationalizing spending when inflation and its rates exceed dangerous and unwanted levels.

There's a need to pay attention to raising investment rates because there is a direct relationship between investment and an increase in the supply of goods and services, as well as the need for direct credit granted to the private sector for sectors and activities with a high social and economic dimension from the perspective of sustainable development in the long term.

 

The effect of inflation on the value of investment deposits

The impact of inflation on the value of investment deposits raises many questions about whether commercial banks achieve real profits.

To what extent does inflation affect the external resources of banks? What is the correct way for the banking sector to follow when the inflation rates are high so that it does not decrease the real profits of investment deposits and does not lead to the erosion of capital?

The extent to which the impact of the change in the monetary unit's purchasing power can be applied and addressed in practice. Some approaches lead to answering the questions asked, which are:

Profits obtained by investors (investment deposit holders).
High rates of inflation lead to the reluctance of investors to invest their money with banks.

The goal is to identify the impact of inflation on the value of investment deposits with commercial banks and the importance of addressing the significant rise in inflation rates compared to profits, which banks grant to owners of investment deposits, leading to the erosion of the real value of these deposits.

The inflation rate exceeds the rate of return on investment deposits, which negatively affects the volume of investment deposits in banks.

Inflation negatively affects the growth rate of investment deposits in commercial banks, which is explained by the corresponding changes in deposit revenues. The higher the inflation rates, the lower or proven the growth rate of deposits.

The adjustment of investment deposits with purchasing power affects the results of the banking sector's business, its total assets, and thus the rate of return on investment so that the adjustment of the data with the modified historical power increases or not less than 3% or 4% of the historical rate of return.

Therefore, it is necessary to protect investment deposits at the inflation rate during the deposit period to ensure an increase in investment deposit revenues.

Here, professional accounting unions and organizations must reach a set of accounting principles and foundations that can be relied upon to improve the professional performance of accounting to form the best system in providing others with the required information.

Therefore, academic institutions should teach the subject of inflation accounting as an independent course due to its multiple and complex topics. This course will be the basis for creating a group of academic accountants who understand the importance of this topic and can apply models in economic institutions.

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