Inflation Impact, Financial Tools, Monetary Policy & Growth

Effects of Inflation

• Loss of Buying Power: When inflation occurs, the prices paid by economic agents for goods and services are higher, which reduces the purchasing power of money.
• Uncertainty: Prices contain valuable information for economic agents to make decisions. Inflation alters prices, destroying their capacity to inform and provoking uncertainty.
• Loss of Competitiveness of Domestic Production Overseas: This will increase the volume of our exports of goods and services.
• Unemployment: The two effects of inflation signals cause a break in the level of employment. If money loses purchasing power, consumption and investment fall. As global demand decreases, so do production and employment. If economic agents are making decisions under conditions of uncertainty, consumption, investment, and employment also fall.

Financial Instruments Used by Operators

Companies

Commonly used funding sources are:

• Contributions made by partners at the time of the company's formation and subsequent enlargement of capital through the purchase of securities representing the company's production.
• A portion of the profits generated by the company that remain as reserves to finance future investments. (These two are from the company).
• Bank loans: Money offered by the bank, available to the company. The company can take what is needed, but then returns just as much money.
• Leasing system.

Families

Their savings from their disposable income.

The State

It draws primarily on taxes and the emission of public debt.

Monetary Policy in the Euro Area

Eurosystem: This comprises the ECB and national central banks of member countries.

Basic Functions:

• Define and implement monetary policy in the area with the goal of price stability.
• Conduct foreign exchange operations.
• Promote the smooth operation of payment systems.
• Ticketing.

Monetary Policy Objective: To achieve price stability.

Economic Growth and Development

Economic Growth: A continued increase in the real output of a country. The main variables used are real GDP and real GDP per capita.

Development: This occurs when, in addition to economic growth, there are a series of structural changes that improve the political, economic, and social structures of a country and increase the quality of life of its inhabitants.

Indicators that reflect this:

• Social: Life expectancy, educational level.
• Economic: Level of qualification, GDP, income distribution, sector weight, percentage of GDP devoted to research and development.
• Political: Degree of democracy, regulation of economic activity by the public sector.

Human Development Index (HDI): Life expectancy, GDP per capita, adult literacy rate, enrollment in primary, secondary, and tertiary education.

Factors Contributing to Development

• Improvements in the Level of Productivity: Productivity refers to the amount of goods and services that each unit of productive factor can produce. As productivity grows, so will the production of a country. Security of productive capital, human capital, natural resources, and technological expertise.
• Saving and Investment: Governments can encourage saving so that a larger portion of income becomes investment, whether aimed at increasing productive capital or achieving a higher level of technological knowledge (research and development), to accelerate economic growth and raise living standards.
• Education and Training: A country's investment in human capital produces positive synergies that are transmitted to all fields of knowledge. Human capital is considered by most analysts as a decisive factor to enhance productivity and economic growth.
• Political Stability: As a prerequisite to run the country's economic system, there must be a system of government that provides stability to its political life.
• Free Trade: The disappearance of barriers to international trade, in general, improves the possibility of economic growth in all countries, since it expands the accessibility of markets and products to many.
• Control of the Population: Shares the highest income growth generated by a smaller number of citizens, so that there is an increase in individual welfare.