Goods and Services in Economy Increases

Question: Discuss about the Goods and Services in Economy Increases. Answer: Introduction: Inflation rate is the rate at which the general price level of the goods and services in an economy increases, thereby reducing the purchasing power of the people of the country (Weale, et al., 2015). Central banks of the economy aim at reducing or maintaining the rate the inflation in order to maintain the stability of the economy. By maintaining the monetary policy goals generated by the central bank of the country, the severe rise in inflation rates can be controlled, thereby saving the country from its adverse effects. Analysis The Bank of Canada and the Department of Finance has decided to maintain the low inflation rate of the economy for more five years. The Department of Finance has stated that the Central Bank has maintained the inflation rate since 25 years and would continue maintaining this procedure fro the next 5 years of tenure. Hence, it could be stated that the reform of maintained inflation rate would be continue until the year 2021. As stated by the governor of the bank of Canada, the country has been able to maintain the average inflation rate of almost 2 percent every years since 1991. The country aims at maintaining the inflation rate thereby achieving a smooth and slow rise in the cost of living that could affect the standard of living in the country. Bank of Canada would now pay more had to the tree metrics of the country, which deals with CPI-trim, CPI-common and CPI-median. Through CPI-common the country would be able to analyse the price changes across the different categories and CPI trim is a short measure that helps in calculating the inflation rate for effects of outsiders that are distant from the sample. CPI median analyses the median price change in terms of CPI sub-component weights (Khan, Morel Sabourin , 2013). Low and controlled inflation helps in raising the employment rate of the economy, provides more real money in the hands of the consumers, and facilitates the growth of the economy. However, the impact of inflation on the economy recovery is not always accurate in nature (Armantier, et al., 2015). Graph 1 : Inflation Rate Of Canada For The Past 20 Years (Source : Data.worldbank.org. 2016) In graph 1, 20 years inflation rate of Canada has been analysed, and plotted in a graph. It has been noticed that the country has been able to maintain a low inflation rate in thereby allowing a stable growth of the economy. There have been fluctuations within this range, yet, the barrier to 2% rate of inflation has been maintained. Canada has measured inflation by the consumer price index. It is stated that the bank and the management of Canada has been less volatile during this span of 20 years. There has been some speculation regarding the slight rise in the inflation rate by the bank of Canada. The bank aims at continuing the research potential improvements within the economy by implementing various monetary frameworks in the years ahead , by considering the constraints that are faced by the bank. Maintenance of the low inflation rate in Canada has helped the citizens of the country in numerous ways. One of our friends, who wanted to take an educational loan for himself, has been quite efficient in generating the loan due to the low interest rates. Low inflation often sets a low interest rate for the public. Tension between self interest and social interest When inflation is low, there is a possibility of performing better business in order to be able to make long-range plans. Purchasing power of the economy increases as the raise is well maintained and the rate would not be eroded year after year. By looking over the maintained inflation target rate of the economy, businesses and individuals do not react over the short-term changes (Malmendier Nagel, 2016). It helps to maintain the productivity of the individuals and the firms, thereby promoting the economy as a whole. Reference Armantier, O., Bruine de Bruin, W., Topa, G., Klaauw, W., Zafar, B. (2015). Inflation expectations and behavior: Do survey respondents act on their beliefs?.International Economic Review,56(2), 505-536. Bank of Canada will stick to 2% inflation target with a twist. (2016). CBC News. Retrieved 21 November 2016, from https://www.cbc.ca/news/business/bank-of-canada-inflation-target-1.3818548 Data.worldbank.org (2016)..Inflation, consumer prices (annual %) | Data. Retrieved 21 November 2016, from https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?locations=CA Khan, M., Morel, L., Sabourin, P. (2013).The common component of CPI: An alternative measure of underlying inflation for Canada. Bank of Canada. Malmendier, U., Nagel, S. (2016). Learning from inflation experiences.The Quarterly Journal of Economics,131(1), 53-87. Weale, M., Blake, A., Christodoulakis, N., Meade, J. E., Vines, D. (2015).Macroeconomic Policy: inflation, wealth and the exchange rate(Vol. 8). Routledge.