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RELATIONSHIP BETWEEN GDP, INFLATION AND
MONOPOLY
GDP: Gross domestic product (GDP) is the monetary value of all the
nished goods and services produced within a country's borders in aspecic time period. Though GDP is usually calculated on an annual basis
it can be calculated on a !uarterly basis as well.
GDP is commonly used as an indicator of the economic health of a
country as well as a gauge of a country's standard of living. GDP can be
used to compare the productivity of a country with a high degree of
accuracy. "d#usting for in$ation from year to year allows for the seamless
comparison of current GDP measurements with measurements from
previous years or !uarters.
%n this way a nation&s GDP from any period can be measured as apercentage relative to previous years or !uarters. hen measured in this
way GDP can be traced over long spans of time and used in measuring a
nation&s economic growth or decline as well as in determining if an
economy is in recession. GDP&s popularity as an economic indicator in part
stems from its measuring of value added through economic processes. or
e*ample when a ship is built GDP does not re$ect the total value of the
completed ship but rather the di+erence in values of the completed ship
and of the materials used in its construction.
Gross domestic product can be calculated using the following formula,
GDP - / G / % / 01
here is e!ual to all private consumption or consumer spending in a
nation's economy G is the sum of government spending % is the sum of
all the country's investment including businesses capital e*penditures
and 01 is the nation's total net e*ports calculated as total e*ports minus
total imports (01 - 2*ports 3 %mports).
Infation: %n$ation is dened as a sustained increase in the general level
of prices for goods and services. %t is measured as an annual percentage
increase. "s in$ation rises every dollar you own buys a smallerpercentage of a good or service.
The value of a dollar does not stay constant when there is in$ation. The
value of a dollar is observed in terms of purchasing power which is the
real tangible goods that money can buy. hen in$ation goes up there is
a decline in the purchasing power of money. or e*ample if the in$ation
rate is 45 annually then theoretically an "67 pac of gum will cost
"67.84 in a year. "fter in$ation your dollar can't buy the same goods it
could beforehand.
Causes o Infation
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Demand3Pull %n$ation 3 This theory can be summari9ed as :too much
money chasing too few goods:. %n other words if demand is growing
faster than supply prices will increase. This usually occurs in growing
economies.
ost3Push %n$ation 3 hen companies' costs go up they need to increaseprices to maintain their prot margins. %ncreased costs can include things
such as wages ta*es or increased costs of imports.
Mono!o"#, " monopoly is a maret structure in which there is only one
producer;seller for a product. %n other words the single business is the
industry. 2ntry into such a maret is restricted due to high costs or other
impediments which may be economic social or political. or instance a
government can create a monopoly over an industry that it wants to
control such as electricity. "nother reason for the barriers against entry
into a monopolistic industry is that oftentimes one entity has thee*clusive rights to a natural resource. or e*ample in
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demand side shoc could be due to several factors such as nancial
crisis rise in interest rates or fall in asset prices (lie houses)
Infation *ue to Mono!o"#, %n$ation by denition is :a rise in the
general level of prices of goods and services in an economy over a period
of time:. hile it could #ustiably be said that it is caused by a monopolyownership (he who has the supply has the power) it doesn't need to be
#ust one person holding the item in demand.
hen a monopoly occurs they have total control over the prices of the
product. %f there is no competition then the monopoly will rise the price so
they can ma*imi9e prot which will cause in$ation.