Inflation generally refers to the phenomenon that the circulation of paper money exceeds the actual amount of money needed in commodity circulation, which leads to the devaluation of paper money and the rise of prices.
Currency devaluation is the symmetry of currency appreciation, which refers to the decline of the value contained or expressed by unit currency, that is, the decline of unit currency price. The devaluation of the currency has led to an increase in prices in China. However, under certain conditions, currency depreciation can stimulate production, reduce the price of domestic goods abroad, and help expand exports and reduce imports. Therefore, after the Second World War, many countries used it as a means to fight against the economic crisis and stimulate economic development.
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1. Impact of currency depreciation
① Impact on import and export. Imports will decrease, and the profits of import-oriented enterprises will decline. Exports will increase and the profits of export-oriented enterprises will increase.
② Impact on employment. If a country is a typical export-oriented economy, its currency depreciates and its exports increase, domestic employment will increase obviously; If a country is a typical import-oriented and consumption-oriented country. Then, if the currency depreciates and imports decrease, domestic employment will also decrease; If a country's import and export are relatively balanced, then the impact of currency depreciation on employment may not be obvious.
(3) Advantages and disadvantages of international capital flows and national foreign exchange reserves. When a country's currency continues to depreciate, a large number of international hot money escapes, which reduces the country's foreign exchange reserves.
(4) Advantages and disadvantages of domestic prices. Currency depreciation will inevitably lead to an increase in domestic consumer prices, which will also lead to an increase in asset prices such as the stock market and the real estate market.
2. Inflation
Inflation is a phenomenon that the overall price level keeps rising in a certain period of time. The direct cause of inflation is that the amount of money circulating in a country is greater than its effective economic aggregate, including low inflation, rapid inflation and cost-driven inflation, which makes the real income level of residents decline and the welfare decrease. Indexes to measure inflation include consumer price index and producer price index.
3. Why inflation?
There is too much money. The actual money demand is less than the money supply, that is, the actual purchasing power is greater than the output supply, which leads to currency depreciation and inflation.
(2) demand pull If the number of resources is limited and the demand increases, the supply cannot increase with the increase of demand. At this time, the increase in demand will only lead to an increase in the price level, which will lead to inflation.
3 cost increase. Cost-driven inflation refers to inflation caused by rising production costs and product prices due to the rising prices of production factors (such as wages, profits, rents and interest) under the condition of constant total demand.