Money in America. A basic idea of how the money goes through everyone's hands

Essay by mi082863University, Bachelor'sA-, April 1996

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The nation's economic stability has many factors which

amount to inflation. Inflation may be caused by a number of

problems, but there are some specific examples which have

direct control over which way the prices and spending sway.

Inflation simply means that the American dollar, in this

case, is less valuable on the foreign exchange market and

the gold standard is moved to higher prices; which simply

means that more currency is needed to exchange for gold.

Any slight change in investments or a company's cost

premium could change the entire economy because of the

domino effect acting on the rest of society. For an

example, flooding in a particular region of the country

could cause inflation. In the long run, the flooding may be

catastrophic for businesses because it could cause a

shortage of products. In order for the businesses to make

up for any lost income, they must boost their prices and

make the profit margins go up.

The profit margins make up

for the lost income and balance out that particular company,

but everyone else must suffer the consequences. In the

business world; the more they produce, the less they can

sell for; the less they produce, the more they sell the

product for.

Profit margins can have a direct impact on the

consumer. The more an item cost, the less a consumer will

want to purchase that particular good. Higher profit

margins may be able to balance a company's budget, but

unless their product is in very high demand, most people

will want to buy the product. The lack of people purchasing

the item may cause the company to lose money and have no

alternative other than to lay off workers. People out of

work means that less consuming will take place, meaning that

other businesses will hurt due to the lack of sales, perhaps

causing those other businesses to move up their own profit

margin, in turn creating the same cycle at a faster rate.

With businesses under, the unemployment rate would be

phenomenal. People would be seeking government assistance

while the government itself is so far in debt and tied up in

credit. The government assistance would add to the already

huge problem of the federal government spending more than it

has. The result of all the hand outs would cause an

enormous dent on the federal deficit. The deficit is

already bad enough, but in a case like this, the government

would try to do something to prevent a long recession.

The Federal Reserve bank tries to balance the economy

out by influencing other banks to print up more money to

make up for the losses. This may stop the ship from sinking

all the way, but this decreases the value of the dollar

because of the excessive amount of money in circulation.

The dollar is less valuable on our own market, so prices

rise. The dollar is also less valuable on the foreign

market which means that it takes more money to equal a yen,

mark, or pound. Also, the value of an ounce of gold is

worth less due to the gold standard, which lets gold be

redeemed for dollars. Inflation has occurred and value of

the dollar has decreased. If most people wouldn't panic and

just stay calm, less stress would be spread, making the

entire economic industry a safer and easier thing to live