Inflation
Inflation refers to a state where there is an increase in prices of services and the cost of goods in an economy. The price rise includes the cost of necessities, housing fuel, and food. Generally, all products and commodities increase in price at the same time rapidly. With inflation, the monetary value decreases since the money cannot buy as many goods as it could have purchased yesterday. Inflation can be calculated by using the Consumer Price Index, which is the average change in prices over a specified period based on consumer goods and their prices. Using the Consumer Price Index, inflation can be calculated as the percentage change within the Consumer Price Index over two periods of time. The difference in the Consumer Price Index is converted to a percentage through comparison to the original Consumer Price Index. To know the inflation, the previous Consumer Price Index is subtracted from the current index, divided by the last number, and the result is multiplied by 100, and this shows the inflation rate. The random price increase is caused by a change in demand and supply, which is not considered inflation.
The value of all finished goods and services manufactured within a country in monetary value is referred to as the Gross Domestic Product. The components of the Gross Domestic Product include consumption, government, investment, and net exports. The factor that has the highest contribution to the Gross Domestic Product is the personal consumption expenditure. This includes goods and services such as furniture, appliances, fuel, and education. The component which has the lowest and negative contribution to the Gross Domestic Product is the net exports. Imports affect the Gross Domestic Product negatively since they reduce it while exports increase the Gross Domestic Product.
A recession has significant economical impacts. It can be defined as a rapid and significant decline in the economic activities of a particular region over a specific period. The Gross Domestic Product reflects a recession because of the substantial change in economic status. Employment, income, and the Gross Domestic Product are greatly affected by a recession in situations where it is put in place. A private nonprofit organization known as the National Bureau of Economic Research is responsible for declaring when a recession will start and when it will come to an end.
The Gross Domestic Product is greatly affected by the introduction of a recession. A recession causes two consecutive quarters of decline in the Gross Domestic Product. The sum of all values of total goods in a country is significantly reduced as a result of the recession. When a recession occurs, the Gross Domestic Product is reduced substantially because there is no economic production. Individuals are not employed; hence when they do not receive a salary, there is no economic growth since there is no disposable income from the individuals. A recession brings a significant slowdown of the economy where goods that bring profits are not produced. This will have a negative impact on the Gross Domestic Product.
Several steps can be taken by the president and congress to stop a recession. The use of fiscal policies can help in a recession where the government will have to adjust its spending. The government will be able to demand employment, goods, and services, leading to economic growth. The government can stabilize the cycle of the economy and help to regulate the output of the economy. Monetary policy involves actions by the central bank that manages money supply and communication. This policy helps to increase liquidity, which leads to economic growth and, in turn, prevents inflation by reducing liquidity. Congress can implement a countercyclical policy response by reducing its spending during periods before a recession and increasing spending after a recession.