Inflation and Investment Essay

â€Å"Inflation Poses Serious Threats to Government† is an article by Leigh Thomas published by Agence France Presse. It deals with section three in the couse companion, Macroecnomics. The article details the negative effects of inflation and what has caused it. â€Å"Foreign Buyers Snap Up Us Real Estate† is an article by Stephanie Armour published by USA Today. It deals with section 4, International Trade. It deals with why U.S real estates are urging Foreigners to buy property in the U.S. The article â€Å"Inflation Poses Serious Threats to Government† focuses on the causes of inflation and the factors that lead to it. Good prices have lifted the inflation rates in Europe. European Unioin’s Eurostat agency said that inflation hit 3.6 percent. Economist Sonil Kapadia s tated that food and oil Prices are the main driers of inflation. Food prices rose 21 percent in China. The oil prices have caused a major dilemma by cutting extra consumer cash and affecting the poor countries negatively. Economists say tat inflation relief might be on the way in the coming months. In addition, inflation threatens economies in Af rica by encouraging governments to take â€Å"knee-jerk† reactions to cope with stress. Real estate agents urge foreign consumers to by land in the United States. The agents are even willing to pay for the air tickets and hotel bills. Because the dollar hit a new low against other currencies, the price of home will be cheaper for foreigners; a discount of 30 percent. This activity is mainly happening in tourists area with warm weathers such as New York and San Diego. Jacky Teplitzky, a real estate agent, said that sales for foreigners rose from 10 percent to 25 percent in the past year. Also, to help attrack foreign buyers, such firms hire foreign speakers in order to translate. Wohlfarth, owner of Wohlfarth & Associates, believes sthat people are diversifiying their investments by buying more land. Inflation due to the rise in food and oil prices has caused disastrous results in the world, especially in poor countries. Oil is often demanded but there is little supply. So this is a type of demand-pull inflation. To reduce aggregate demand, a government could use deflationary fiscal policy, increasing taxes and lowering government spennding and/or deflationary monetary policy, which is rasising interest rates and reducing the money supply. iF all oil producing cuntries increase the output without using more costs, then prices for oil wouldnt necessarily rise. This is Elasticity of supply. Also Elaasticity of demand may help prevent inflation. If the goods were elastic then buyers will resist the price rises. If there are a lot of substitutes for a certain product, then buyers will simply switch spending away from the more expensive products. So if food prices are increasing, it is advised that consumers switch to another brand, if one exists. It is an advantage for both the U.S and the foreign buyers that buy land now in the U.S. But this is occuring because the dollars value is sinking. To improve the economy more efficiently, it is best if the dollar rose its value. THe dollars low value may help real estate agents to buy more land but in the mean time, inflation could arise because of the low value of the dollar. IT wiould help if money market investors shift to the dollar for low interest rates.