Category: Economic System

Implement soccer industries in Guayaquil

Soccer as always has a lot of earnings to the country, but know the economy of Ecuador has a decline. Direct Tv, Tv cable, Fox sports and Teleamazonas are interested in Ecuador televisión rights. Direct tv and Tv cable have offered four hundred thirty-two million dolars, Fox sports and Teleamazones have offered three hundred two dollars to broadcast the ecuadorian championship. This kind of offers are popular around the world.

Guayaquil takes many examples of european countries, in germany people relfex about two important points. First to explain that a team and a league is like a company and make up a bussiness system, that is why their success depends on the model of bussiness they use. Second people watch that soccer turned into and international economic system that is conected with every country around the world.

The european system is an inspiration to other countries. This system was created by Joseph A. Schumpeter minister of finance in Austria and teacher of hardvare said that soccer is distinguished because it is innovative, look for constant changes and try to break structures that can´t let a Company position above their competition.

In Europe the system begins with the training of soccer players in a young age in soccer schools with a multi-disciplinary character, institutionally leagues and soccer teams have a high level of organization, proffessionalism and planeation that let the develop of this tournaments.

Mexico follows a different scheme of business, Mexico has the central objective to make short-term profits, this justify the existance of short tournaments, a short league, constantly soccer players are sold to european countries and a high rotation of template of soccer players and technical body.

Ecuador took this two models to made their soccer system. In Ecuador there are many soccer academys that help soccer players with talent and a Young age are trained in soccer schools to have the tools that would help them to have an opportunitie to become proffessional.

In Guayaquil are the best soccer teams in the country includings Barcelona, Emelec and Guayaquil City, in this time when children turned to teenagers, they have the opportunitie to prove their abilities in one of the teams in Guayaquil, this help them to start their carreer as proffessional soccer players demostrating their talent to the coaches that watch them in soccer matches.

In Guayaquil the system is a combination of these two models. Guayaquil take the european system to teach Young players the tools to become soccer players as they have an organized system of tournaments and the league called “Liga Pro”, but they combined with the mexican system in the way to create a short tournament called “copa Ecuador” and the constantly sold of soccer players to mexico, Brasil, Colombia or argentina, a high rotation of the technical body, this two methods help to increase the earnings to the city, but there is a problema of corruption in Guayaquil and in all the country too.

Soccer without Corruption

Corruption has existed in the last years, but know has increased because more people are interested only in the economic earnings. From their president of the soccer federation of Ecuador to the brave bars of the teams of Barcelona and Emelec stain the name of soccer in Ecuador. Corruption appears from human trafficking in a high level of young soccer players to the brave bars that believe they are the owners of the stadium, even certain leaders that practice corruption are in jail paying cutodial sentences. (Appendix 1, Picture 2)

Another type of corruption is the dialogue between the coaches of diferent soccer teams about the payment of soccer matches before the result is given. A coach of Macará told to the press that he spoke with the coach of El Nacional and stablished an agreement to give them a win or a draw, the payment depends on the final result, the coach of El Nacional talked wit the goalkeeper and the lateral to let the other team make the goal, so they would receive a percentage of the money that the team would give to the coach.

On the other side the president of the federation os soccer in Ecuador Carlos Villacís said that the federation needs to put a stop to the corruption of soccer in Ecuador, he said that the federation needs an extremely change. First to punish people that do this type of corrupt actions, it doesn´t matter if there are coaches, players or managers. If they are soccer players they have to be punished with an economical consequence, if they are coaches or technical directors they have to be punishes with an economical debt and the remove of the license of managing the team, if they are managers that control and support the economy of the team they have to be punished with an economical debt and have to be fired, their license for managing the economy of the club would be removed and they can be in jail dependind on the severity of the case.

A cooperation agreement between the Ecuadorian soccer Federation, the Anticorruption Secretary of the Presidency and the Financial and Economic Analysis Unit was signed on Thursday, May 13, 2019. The agreement will allow working together to fight corruption around soccer in Guayaquil. One of the main benefits will be the creation of an Ethical Integrity Unit.

In Guayaquil the signature was made between he vicepresident of the federation of Ecuadorian soccer, Jaime Estrada, the boss of UAFE, Leopoldo Quirós and the secretary of anticorruption, Iván Granda. The initiative that proposes the UAFE and the secretary of anticorruption is to give a technical support to the federation and conforms a team between the three institutions. Their labour is to investigate complaints of alleged cases of corruption and prevent commitment of ilegal acts.

Jaime Estrada manifested that this alliances are part of Jobs with “transparency, balance of order and justice” that search with this new administration trying to give confidence for the people that thinks that the FEF still have corrupt people, with reports of information the UAEF will be investigating inusual movements of posible cases of money laundring.the Expresident of the Federation Luis Chiriboga Acosta is in jail of Latacunga seving a sentence of six years for commiting money laundering.

Increase earnings to soccer insdustries in Guayaquil

Leaders of the professional league of soccer in Ecuador are to analyze the increase the number of teams in the proffessional league in the next year. Miguel Angel Loor is analyzing the best and more convenient for soccer in Ecuador. He stablished that Ecuador is the second country with the longest schedule around the world, but with a lower quantity of teams in South America. Ecuador doesn´t receive the earnings that soccer in Ecuador deserves. The Federation would have the help of logistics, calendars, televisión rights and calendars that would give them an economic entry.

With the help of sponsors and ticket office because when a team plays in their stadium, tickets offices are useful to increase earnings to the club. With televisión rights, partners and marketings finance the team with at least twenty million dolars, with this increases clubs make signings of foreign soccer players that made soccer more attractive to the public, always club are interested in young players called “future stars”, coaches give them minutes to plat and demostrate their talent to the public. (Appendix 1, Picture 3)

A legal department with the Federation of soccer in Ecuador stablished the rules that are going to stay with the FEF: Control of doping, asignation of referees, resolution cameras and solve conflicts between soccer players or teams. With the increase from twelve to sixteen teams in the league A is a great idea to increase the earnings to the country, trying to copy a model from Chile, Mexico or Spain.

“Production is the only answer to inflation”, – Chester Bowles.

Inflation is the rate at which the general degree of costs for products and enterprises is rising and, therefore, the buying intensity of money is falling. Inflation has a lot of positive impacts it helps a lot to raise the GDP (Gross domestic product) of the country. Inflation is necessary for a country to develop its economic growth. Most of the businessmen, economist and government has maintain the moderate inflation levels that are expected to drive consumption accepting that more significant levels of spending are essential for economic growth. How inflation has a positive impact? Firstly, when inflation occurs there will be an increase in productivity. Secondly, it gives benefits to investors/company. Thirdly, government is benefitted from inflation too because GDP (Gross domestic product) increases when there is inflation.

When the makers get the right investment, they make more goods and services. When the businessmen sell their goods at higher prices, they get more profit which led them to increase their production of goods. Inflation gives more benefits to those sellers who deal in precious materialistic items such as gold, silver, diamond, bronze etc. When inflation occurs it benefits the businessmen due to which they expand the business and open or make more business which decreases the unemployment and benefits the economy of a country. Government gives benefits to the business or companies because they invest huge amount of capital in the country which become the reason of rising the economy by creating jobs which ultimately effects the stock market. But due to inflation the purchasing power of middle class and lower-class people falls. But inflation is important to strengthen the economy of a country.

Inflation benefits those investors who are waiting for the rise in prices and it benefits investors in such a way that the value of their assets, stocks, bonds, mutual funds increase which they can sell to the people at higher prices and get there favorable profits according to their demands. For example, if a person has purchased a home for 90lacks then due to inflation he will sell his asset (home) more than 90lacks. A few organizations receive the benefits of inflation if they can charge more for their items because of a flood sought after for their goods. On the off chance that the economy is performing great and housing demands is high, home-building organizations can charge more significant expenses for selling homes. As it were, inflation can furnish organizations with estimating force and increment their net revenues. In the event that net revenues are rising, it implies the costs that organizations charge for their items are expanding at a quicker rate than increments underway expenses. Mostly customers became the reason for rise in prices because when they consume a specific product too much made by a specific company then company use this product to earn more profit by increasing the price of that product which consumers consume a lot. Such products like oil, gas etc. are those products in which prices increases gradually or rapidly in inflation because these products have high value and are used on daily bases at home, factories, stations etc.

Inflation is good for the economy and to increase the GDP (Gross domestic product). Deflation is potentially very damaging to the economy and can lead to lower consumer spending and lower growth. For example, when prices are falling, consumers are encouraged to delay purchasing in the hope prices will be cheaper in the future. Imports and exports of goods are important for the government but when there is no inflation then the prices of goods falls, which makes exports easier but imports costlier. When economy is not running well then theoretically inflation helps by increasing production. To make better GDP and to reduce unemployment rate government should have to increase inflation because both have inverse relation. Inflation benefits the government in such a way that it reduces its debt which had to be paid in the future. Inflation effects the cash of the economy as well because when inflation is increased prices of goods are also increased and the purchasing power decreases which benefits the government in different ways. One of the benefits from inflation to the government is that it imposes higher taxes from which the government pay their loans because each dollar become less valuable which ultimately reduces debt of the country. Gross domestic product (GDP) increases in with inflation and the debt of the country becomes smaller in number which becomes easy for the country to pay their debts which is their liability. A moderate expansion rate diminishes the genuine estimation of obligation. On the off chance that there is flattening, the genuine estimation of obligation expands prompting a press on expendable livelihoods. Moderate paces of expansion enable costs to modify and products to accomplish their genuine cost. Moderate paces of pay expansion, enable relative wages to alter. Wages go down a moderate expansion, firms can freeze pay for less gainful specialists – to adequately give them a genuine compensation cut. Moderate paces of swelling are an indication of a solid economy. With financial development, we typically get a level of expansion.

While increasing demand is generally great news for an economy, a lagged supply chain can cause Inflation. In this blog post, we’ll go through why this is a very real issue facing economic managers all around the world.

Firstly, what is inflation? Inflation occurs when the demand for a product/service is greater than the current supply. When this occurs, the products value will naturally rise to meet the maximum amount consumers are willing to pay for the supply available. This happens in all markets in some form or another, it’s very apparent in currencies like the US Dollar and even Bitcoin while it also occurs very subtly in retail markets. As I suggested in the opening sentence, increasing demand is usually the result of a growing economy which is generally desirable, but when unmatched by the economies suppliers significant harm can come to parties affected by inflation. Here’s how:

A gradual decrease in real purchasing power refers to the actual purchasing power to the value of the dollar, this can be a consequence as those on fixed incomes. While most employed people will gain wage increases to align with inflation many members of the economy don’t have this luxury. Pensioners/retirees are a great example of a fixed income member, as they’re often living on a set amount of funds supplied by their savings or a government welfare program. Therefore, when prices rise it’s quite common that they will not be able to purchase the same quantity of goods/services. Effectively the value of their dollar is depreciated by the increase of cost of products.

Greater inequality is likely to occur as those with higher incomes are less affected by the movement of prices on commonly purchased goods such as groceries and other necessities. Whereas lower income households will be more sensitive to price movements as they take a greater proportion of their income. Living expenses are generally quantified on a bare necessity level, everybody needs toothpaste though a 50-cent price increase won’t affect all members of the economy evenly.

A less efficient economy can be present when inflation occurs as new businesses are much more likely to engage in less efficient business practices to take advantage of abnormally high prices. When a supplier isn’t required to be scrupulous of expenditure, they are far more likely to cause waste in the economy. Waste in this sense can be described as when resources are not used to create the greatest possible quantity of outputs. A business may cut corners and allow inefficiencies due to less needed concern on costs.

Weak international competitiveness is more commonly a long-term effect of inflation. As living conditions and product prices increase domestically, so does the costs of production. This is a problem in first world countries as they’re unable to produce products at a low enough price point to compete on global market. Competitors in nations with cheaper costs will often outproduce and outsell first world nations due directly to their inability to compete with inflated prices.

There will be less savings in the economy, as a greater proportion of net income will be handed out to cover expenses of the now inflated prices. When the population is in a less-saving mood, the economy will generally adjust to a cash shortage. In which, banks will have less money available to loan and therefore higher interest rates are likely. This is one of a few ways that an economy can throttle itself into a stall. As interest rates rise to reduce the amount being borrowed, businesses and mortgage holders may be forced to default on their borrowings, leading to economic downturn.

Egypt has one of the longest histories of any other nation, tracing its heritage until the sixth or fourth millennium BC. Egypt saw some of the earliest developments in writing, agriculture, urbanization, organized religion, and central government. The Egyptian economy depends mainly on agriculture, telecommunications, oil and natural gas exports and the tourism industry. Also, more than three million Egyptians are working abroad, mainly in Saudi Arabia, the Persian Gulf and Europe, who send remittances to the country, as well as revenues from the Suez Canal.

The Egyptian Pound (EGP) is the official currency of the Arab Republic of Egypt, as designated by ISO 4217. Also, the pound’s symbol is E£.

The unemployment rate had a significant change in 2017 to 2018 due to the ongoing national megaprojects. The public sector has been making several efforts such as Suez Canal expansion, road extensions, and New Administrative Capital, which have employed thousands of Egyptians.

In 2001, began a managed float that continued until 2016, which made its currency reduced its value by almost 50% against the dollar. As an example of the continued deterioration of the EGP’s value, as of May 2018, the exchange rate was 17.6 Egyptian pounds to every dollar. Since the 2016 devaluation, the Central Bank of Egypt has taken several steps to shore up EGP and the Egyptian economy as a whole. In April 2018, the government announced a reduction in interest rates, the second 1-percent rate cut in two months, meant to attract investments from home and overseas.

Egypt has received foreign aid from the United States since 1979 (an average of $2.2 billion annually) and is the third largest beneficiary of such US aid funds after the Egyptian society is moderately unequal in terms of the income distribution, and it is estimated that between 35-40% of the country’s population earns less than the equivalent of two dollars a day, while only about 2-3% could be considered rich. Also, Egypt is among the poorest and youngest nations across the Arab world. As the economic conditions deteriorate, consumers spend more time finding better deals and shopping at informal outlets nearby. Lastly, despite Egypt having the largest population of Internet users in the MENA region, only 8% of Internet users are reported to make online transactions.

The country’s economic conditions have started to improve considerably after a period of stagnation due to more liberal government policies, rising tourism revenues, and a rising stock market. Foreign direct investment (FDI) in Egypt increased considerably before the fall of the Hosni Mubarak regime, surpassing $ 6 billion in 2006 due to liberalization and privatization. Since the fall of Hosni Mubarak during the 2011 Egyptian Revolution, the country has experienced a drop in investment and foreign tourist revenues, followed by a 60% drop in foreign exchange reserves, a three percent drop in growth and a rapid devaluation of the Egyptian pound.

One of the actions that the new government is doing is shut down a mechanism that assures that foreign investors can repatriate their external currency earnings. Thereby, this move could mean more volatility for the stagnant Egyptian pound.

Egypt’s external debt is reportedly approaching the $90 billion mark. In terms of gross domestic product, the external debt had reduced from 2017 to 2018 but still a significant debt. The government is using a strategy to reduce the inflation rate and this strategy might have proven effective but it exposes the economy to the risk of an external debt default if it keeps growing at this current rate for a few more years.

The economy of Egypt was a highly centralized economy under President Gamal Abdel Nasser and remains an autocracy with a political regime undergirded by a powerful, economically-influential military. In the 1990s, a series of International Monetary Fund arrangements, coupled with massive external debt relief resulting from Egypt’s participation in the Gulf War coalition, helped Egypt improve its macroeconomic performance.

Since 2000, the pace of structural reforms, helped Egypt move towards a more market-oriented economy (more private) and prompted increased foreign investment. The reforms and policies have strengthened macroeconomic annual growth results due to public investments, private consumption, and exports of goods and services. These practices are creating jobs and changing the unemployment rate scenario.

Overall level of economic development Egypt is one of the most developed countries in Africa, it has the 2nd largest economy (behind Nigeria) in terms of GDP total nominal and is relatively stable. The country results in economics are getting better among the years. However, still is classified as a developing country in the world.

In conclusion, Egypt is an interesting country to invest especially in services that are an industry that is growing fast. Also, is considered a stable country in base on his credit rating by Moody’s S&P, and Fitch and the GDP is getting better every year with the new government since 2016.

References

1. https://pt.wikipedia.org/wiki/Egito#Turismo
2. https://www.investopedia.com/terms/e/egp.asp
3. https://www.bbc.com/news/business-37857468
4. https://egyptianstreets.com/2019/05/01/employment-rate-in-egypt-rises-to-90-1-capmas-report-reveals/
5. https://en.portal.santandertrade.com/analyse-markets/egypt/reaching-the-consumers
6. https://pt.wikipedia.org/wiki/Egito#Turismo
7. https://www.investopedia.com/terms/e/egp.asp
8. https://www.bbc.com/news/business-37857468
9. https://egyptianstreets.com/2019/05/01/employment-rate-in-egypt-rises-to-90-1-capmas-report-reveals/
10. https://en.portal.santandertrade.com/analyse-markets/egypt/reaching-the-consumers

Giving people the resources and ability to learn about how things are going in our economy is an extremely important thing. One issue that is especially prevalent in today’s economy is inflation and how it affects the overall well-being of the people in our country and around the globe. This economic issue affects every member of our society, and it is especially important that our citizens keep themselves well-educated on this topic. In a sound economy, costs will in general increase – this is known as inflation. While you probably won’t care for that as a buyer, price growth rising moderately is an indication of a solid, developing economy.

The U.S. Federal Reserve currently considers a 2% inflation rate to act as the best growth rate for the economy, which is about its present level. Be that as it may, a few financial analysts, including those at the Federal Reserve, stress the economy is debilitating, which would make inflation dip under its objective, which is something that needs to be avoided at all costs. The most recent information, which was released to the public on June 12, implied that this might be occurring.

Inflation is characterized as the changes in the costs of all of our possible expenses, ranging from a bag of dog food to a yearly flu shot at your local pharmacy. A tool called the consumer price index is frequently used to decide increases in salary or to modify benefits for retirees. The year-over-year change is the thing that we call the inflation rate. In the course of the most recent year, the cost of goods containing tobacco went up 4.6%, while the value of clothing fell 3%. Obviously, the real change in typical cost for basic items will differ from each individual based upon how they choose to spend their cash. The most recent information from the Department of Labor demonstrated an intently watched proportion of inflation was lower than anticipated in May, a stressing sign that the economy might be developing too leisurely.

Conclusion

A moderate measure of inflation is commonly viewed as an indication of a solid economy, in light of the fact that as the economy develops, the demand for goods and services grows. This growth of demand pushes costs somewhat higher as providers attempt to make a greater amount of what buyers and organizations need to purchase. When inflation becomes excessively low, or vice versa, a horrendous cycle can wreak havoc upon our economy. High inflation has a wide scope of negative ramifications for economies. At the point when work compensation is unable to stay in line with the inflation of retail costs, the power of purchasing of the paychecks that workers receive quickly diminishes. This causes a huge problem for households that are low income, because any increase in the price of any goods or services can have very serious negative effects. Laborers’ requests for growth in their wages can prompt an expansion in costs of labor, bringing about lower benefits for organizations. These impacts of expansion can make a high level of vulnerability in an economy, prompting diminished venture from those who aim to start their own businesses.

Let’s first know what’s ‘inflation’; it’s the increase in consumer goods and services price cause of producing several banknotes more than those goods and services itself. Or vice versa, which means there is a production surplus remains from the overall supply, or maybe because of the increase in production cost itself. A lot of causes could lead to inflation. Therefore, we must mention that there are four types of inflation.

The ‘normal inflation’, when the population increases the need for goods and services will increase, in this case, the government must involve facilitating the people’s life by producing more banknotes without cover which lead to increase in prices. And this is the most common type between countries, and that’s why governments always launch birth-control awareness campaigns to reduce the impact of population density.

Another type of inflation called ‘attractive demand inflation’ and this type always exists whenever the countries are increasing in prices because of the huge surplus in overall demand locally or internationally. This could be a temporary situation, or it could continue for a long time like what’s happening with the seasonal products (food, toys. etc.) in such cases the amount of spending does not match the actual amount of production.

The third type of inflation called ‘infiltrated inflation’ and it’s quite the same as normal inflation, but it happens when we face a decrease in production and an increase in prices. In this stage the consumer behavior changes to aggressive spending for the same products even if they don’t need it, for the time being, instead people save it as an inventory to avoid any increase in prices that could happen in the future. And that infiltrated inflation always holds back growth.

The fourth type of inflation called ‘runaway inflation or hyperinflation’, this type is very rapid and almost impossible to reduce. Usually, this type happens at the beginning of any transforming phase from economic stage to another, or the phase after the war is ending, we consider this type is the worst because people always lose trust in the current economic rulers.

In the end, we cannot assume if the increase/decrease in supply and demand is good or bad inflation unless we are fully aware of our country’s situation and the resources we own. Most of the studies mentioned that inflation could be good or bad for the economy, but it depends on the causes leads to this inflation and if the country succeeded to find the main reason behind that inflation. Therefore, countries should set proper monetary and anti-inflation policies so they can have a positive impact.

Have you ever thought about how inflation can affect us in a financial sense? This paper will go in depth and explain the causes of inflation and how it affects consumer behavior, income, investment, and business. In this paper we will go over the methods on how inflation is usually managed and what standards it meets to raise alarm about the economy. It will also provide explanations to understand news of inflation in an effective way.

Inflation is an economic term that has been used in many of the business and economic reports that are presented throughout the media today. Some people do not understand inflation in a clear way on how it works and how it affects our living, resulting people to simply ignore the importance that inflation has in the society. Inflation is the general increase of prices due to increasing consumers demand for goods and services that surpasses what businesses can produce. A cause to this is when employers concede wage increases that surpass profits in productivity, and then these employers would make up for these wage increases by charging consumers with higher prices to their products. In some cases, there could be an increase in the cost of products due to environmental or physical factors, such as, for example, the cost of eggs had risen because a virus had killed many egg-laying hens in poultry factories.

When the cost of goods and services rises, the buying power of the dollar declines significantly. During a period of inflation, a certain amount of money can purchase less than it used to. For example, an employee may receive a salary increase of 20%. If prices remain steady, the employee can buy 20% more goods and services. However, if the prices increase 20%, the employee’s purchasing power has not changed, but if the prices increased even more, the employee cannot purchase as much as he or she formerly could. This is especially difficult for workers with fixed incomes.

There are also different kinds of inflation: mild, moderate, severe, and hyperinflation.

Mild inflation is when the price level increases from 2 to 4% a year. If a business can pass the increases along to the buyer, the economy flourish; jobs are plentiful, and unemployment rates go down. “A risk in a growing economy is that it may grow too fast” (Prentzas, 31). If incomes increase faster than prices, workers would have better purchasing power. Unfortunately, this would last for a while. Employers seek out for larger profits through periods of economic growth, and unions seek out higher wages. This would result to prices rising even further, meaning increasing inflation.

Moderate inflation happens when the price level increases from 5 to 9%. During moderate inflation, prices increase more rapidly than wages, making the purchasing power to decline. Most individuals would buy more because they want more goods and services before the prices would increase even further. The increase in demand would eventually make the prices to go up more.

Severe inflation (or double-digit inflation) is when the yearly rate of inflation is 10% or higher. Expectantly the prices go up even higher than the wages, so, it is expectant for the purchasing power to decline even more. It can also decrease a country’s output of goods and services by decreasing demand from foreign and domestic consumers since the products have become more expensive. Demand for exports decline because other countries would seek out for cheaper alternatives and so would the domestic consumers.

Hyperinflation is the worst, with uncontrolled and rapid inflation. It usually happens when a government coins money to back a level of spending much larger than what it collects in tax revenue, usually because it can no longer back its budget deficit by selling bonds. The huge amount of money being distributed would initiate a huge decline in its value. When money loses value, it would not be in much use because many people would trade goods and services, not currency. Hyperinflation had caused downfalls in the economies of some nations during or after war.

Knowing what you hear about inflation is quite nice. The inflation rate in the United States is usually measured by the Consumer Price Index (CPI), a monthly measure, done by the Bureau of Labor Statistics. It tracks price changes of a representative group of goods and services that are regularly purchased such as food, clothing, housing, medical care, etc. The total price of these items is compared with their total price during a base period (an earlier period.) As a consumer, the lower the calculated number is, the better.

To control inflation, the government would reduce its budget deficit (the amount by which a government’s spending surpasses its revenue) or reduce the money supply. Most governments use their money supply to try controlling inflation, the practice being labeled monetary policy. The monetary policy of the United States is managed by the Federal Reserve System. The Federal Reserve can try to reduce the rate of inflation by increasing interest rates on loans; encouraging people to spend less money and loaners will not have to keep increasing prices, so that inflation calms down.

The government may also follow along with the fiscal policy, which involves its spending and taxing programs. The government can use these programs to reduce the demand of goods and services. It can reduce its spending by buying less from businesses, causing a reduction in sales and people would have less money to spend. It can also reduce the income of consumers by raising taxes, making them to spend less money, easing the demand for goods and services, which leads to inflation leveling off.

Another way to fight against inflation would be wage and price controls established by the government to limit wage and price increases during an inflationary period. Some economists assume that if a government limits these increases, wages and prices would level off, and others believe that controlling them would be ineffective, while others think that trying to control them would interfere with the natural rise and fall of wages and prices. However, implementing wage and price controls have been proven ineffective in advanced economies.

An increase in inflation can lead to erratic investments. Usually, prices give out signals that help individuals and businesses make the economic choices that break down the factors of production. With inflation, people would have a distortion of that process and begin to speculate (to buy things of huge value thinking they would increase in value later on). People would not invest as much as before and would continue to speculate, giving a bruise to the economy.

With wage increases being slower than the rising inflation, one might feel down, as the cost of living increases. By looking at the long term, one should at least start saving for future needs. Currently we are experiencing mild to moderate inflation but it is not too late or too early to start investing in your savings or retirement.

Works Cited

1. ‘How Does Inflation Affect You?’ 18 Oct. 2011. Web. 4 Dec. 2019.
2. ‘How Inflation Affects Your Cost of Living’. Investopedia. 15 Aug. 2014. Web. 4 Dec. 2019.
3. ‘Inflation: What Is It And Why Should I Care? – The Simple Dollar’. The Simple Dollar Inflation What Is It And Why Should I Care Comments. 26 Feb. 2007. Web. 4 Dec. 2019.
4. ‘Inflation’. The World Book Encyclopedia. 2013. Print
5. Prentzas, G.S. How Interest Rates, Credit Ratings, and Lending Affect You New York: Rossen Publishing, 2013. Print

Economic system is the mechanism by which countries and governments manage wealth and exchange goods and services. The production factors, including land, capital, labor and entrepreneurship are used to regulate the systems. In other words, how the people of a nation joined together to create a complex whole and perform economic transactions between each other. Economic systems are complicated as they depend on the fact that millions of people work together in the market, driving supply and demand. For instance, it sets off a chain reaction if millions of people rush to the Apple store for the latest iPhone. There are more batteries, glass, electronic chips, and other components that Apple needs to order. In turn, in those industries, that sets off demand. In order to meet the needs of its people, every society must answer three basic economic questions:

1. What should we produce?
2. How should we produce it?
3. For whom should we produce it?

A nation may decide to manufacture candy or vehicles and computers for instance. The products could be manufactured in privately owned factories by unskilled workers or by technical experts in government-funded laboratories. Once they are made, the items could be given out to the poor for free or sold at high rates that can only be afforded by the wealthy. So, the opportunities are endless. While each society answers the three fundamental economic questions differently, each encounters the same fundamental problems in doing so: allocation of resources and scarcity.

There are mainly four types of economic systems in the world: traditional economic system, market economic system, command economic system, and mixed economic system. Such economic structures are unique and have a complicated background associated with them. Such economic systems rely on a variety of structures and contexts and have their own strengths and weaknesses.

Traditional Economic System

A traditional economic system is the oldest and most conventional type economic system in the world. This economy focusses to manufacture products and services that are a direct result of its customs, beliefs, tradition, and culture. The parts of the world which follow traditional economy are mostly rural, second or third world and are very close to the land due to various farming, fishing, and cattle herding etc., where they can still be found in the agricultural areas of developing countries in Asia, Africa, and South America. This economy is based on a barter system and has no concept of money or currency. The people that fall under this type of economic system are placed around their tribes and families. This economy’s primary purpose is to produce goods to meet its community’s needs. There is no definition of trading, because in this kind of economic structure, people never worry of market surpluses. One most important advantage of the traditional economic system is that it preserves the tradition and custom of the area which is not possible in other economies. Each member of this economy has a particular and distinct function that makes individuals socially happy with this economy. The disadvantage of the traditional economic system is that the items widely available in other economies, such as medicines, technologies, and centralized services, are not experienced.

Market Economic System

A market economy is completely the opposite of a command economy and is similar to a capitalist system. The main segment of the economy, like vital resources and valuable goods and services, is not regulated by the government. Industries and households act in self-interest in the market economy and dictate how resources will be allocated, what sort of products will be generated or purchased. There is completely no government involvement or influence or other controlling power, which ensures that buyers or sellers are not limited. The economy is thus influenced by contributors to the economy and by the rate of demand and supply. For example, the United States of America is a capitalist nation, but the American government is still controlling moral businesses, fair trades, monopolies, government programs etc. as there is no true free market economy exist in the world. The major advantage of the market economic system is the separation of government and the market. As a result, the government is less powerful and gives some power in the hands of private institutions and businesses. Theoretically, a market economic system empowers a nation to experience a high degree of growth. Businesses create profitable goods and services in the free-market economy and offer private businesses a lot of incentives. There is an immense opportunity of innovation in the free market economic system because businesses invest a lot in research and development. Competition, on the other hand, leads to inequality and there is a risk that businesses will only think for profits and neglect elderly or disabled people. Monopolies will exploit consumers, and economic development would become a priority over social and human needs. Adam Smith was an 18th-century teacher and philosopher who is widely regarded as the father of classical economics. He wrote the seminal work, ‘An Inquiry into the Nature and Causes of the Wealth of Nations’ in 1776. Smith formulated the idea of an ‘invisible hand’ which claims that individuals will often act in their self-interest, left to their own devices, and those interests will inadvertently balance out to achieve the best result for all. Smith believed that labor, specifically the division of labor through the specialization of tasks, was the key to prosperity.

Command Economic System

A command economic system is often referred to as a socialist or communist system. It is directed by a single centralized power such as government, which controls all activities of this type of economic system. The government has the right to make all decisions about the economy. It is responsible for determining the type of goods produced and the quantity of goods produced. The price of the products in the market is also determined by the government. The government owns everything from the industrial processes to equipment. Countries like China, Cuba, and North Korea are the practical examples of a command economic system. These economies are often referred to as planned economies, since all economic plans are controlled by the government and nothing is elected by the free market. In a command economic structure, there is no competition among the sectors, and in all businesses and segments, the government has a monopoly. No competition will lead to a lack of innovation because the need to take risks is not found by industries. The laws and regulations implemented by the government must be followed by all businesses and sectors. One of the major challenges facing these governments is creating opportunities for workers and providing goods and services at affordable rates. Most of the command economies focus on resources like oil. Due to their inflexibility and centralized design, command economies have slow development. Karl Marx was a philosopher, author, social theorist, and an economist (1818-1883). He was considered as ‘the father of socialism or communism’. In 1848, he wrote ‘The Communist Manifesto’. Marx believed that in the capitalist economy, the drive for profit by business owners would force worker wages to levels of ‘subsistence’ and that they would be abused. He said that, eventually, in a revolution, exploited workers will work together and overturn capitalism. This would replace capitalism with socialism. He believed that production would be centrally organized in this system, and the distribution of the products produced would be ‘to each according to its contribution’.

Mixed Economic System

A mixed economy is a combination of market and command economies. In comparison to the command economy, the government has less interference. Industries run the economy in most common countries, with strict government control in particular areas such as public transportation and public goods and services. Most of the western economies are considered mixed economies. In such economies, neither government nor the private sector can manage the whole nation. Private businesses will, thus, operate more effectively. The government may, however, intercede in order to take care of any business failures. The government, for example, has the power to demolish a business if the monopoly is exploited. Another example is that taxes on harmful substances like tobacco and alcohol are imposed by the government. The government is responsible for developing health care and social security services in mixed economies. In addition to all this, the government uses taxation policies to minimize inequality and fairly distribute income among its citizens. However, there are still few who agree that government over-interference is not good and another common concern is that government-run businesses become uncompetitive and cause government losses and debt formation. Eduard Bernstein was a German social democratic theoretician and politician, member of the SPD, and founder of evolutionary socialism or reformism proposed a form of mixed economy, claiming that a mixed public, cooperative and private business system would be essential for a long period of time before capitalism would grow into socialism on its own.

Conclusion

So, in this essay we have analyzed in detail the concept of economic system, as well as examined its main types, with a detailed analysis of the advantages and disadvantages of each of them.

The COVID-19 pandemic has led to huge social and economic upheaval globally. In March 2020, the US 10-year breakeven rate (the market-implied average inflation rate over the next decade) reached 0.55%, when the world was peering into a deflationary abyss. Fast forward a little over a year, and investors have flipped from fears of persistent deflation, to fears of persistent inflation at levels not seen since before the Global Financial Crisis.

The threat of sustained higher inflation not only has a potentially meaningful impact on our daily lives, but also has major implications for portfolio construction. To fully assess the impact of this we need to look at the reasons why the 10-year breakeven rate has now risen to 2.6%, but also consider why this rate may actually fall back, over our longer-term time horizon. In the short term, a little inflation is a positive thing for the global recovery.

We should however look at both scenarios in the context of wider risks to a multi-asset portfolio, not losing sight of the overall objective.

Following April’s US CPI number of 4.2%, it is clear increasing prints will be the norm across the globe over the coming months, as the deflationary effects of the pandemic last year (oil actually briefly traded with a negative price in futures markets) affect the base for this year.

These base effects will be exacerbated by short-term supply issues, for example, shipping containers which are randomly scattered in ports across the globe, then there is the semiconductor shortage, which is hurting the auto industry, and even cardboard (think online shopping) boxes. To link it all together if you excuse the flippancy – Cadbury’s owner Mondelez stated they cannot fill UK demand for their 99 flakes for soft-serve ice cream. It transpires the majority are made in a factory in Egypt, where until recently, a container ship literally blocked the Suez Canal.

There is an argument that if demand does bounce back sharply, supply will catch up, and thus any inflation surge will be temporary. However, US dollar weakness that has emerged in the last year will help inflation rise globally, coupled with the Fed’s new average inflation targeting framework which assists with inaction if inflation remains at higher levels, meaning that in the short-term investors need to be vigilant. We believe with our long-term perspective, structural trends weighing on inflation are unlikely to be reversed.

Demographics, debt, technology, output gap (may take years to close), labor mobility linking to anti-globalization are a few of the key disinflationary dynamics that face the world today.

To take demographics and debt as examples – fiscal stimulus is being utilized in this crisis, but most of it has been to replace consumption and investment impacted by the pandemic. Many economists argue that if debt is only used for consumption, then that simply brings forward consumption, weighing on consumption further out unless you can push debt higher and higher.

It is probable we will see low growth rates on count of aging demographics. US population growth in 2019 was the slowest since 1918 (even more remarkable as it was the year of the Spanish flu, and WWI) and unsurprisingly 2020 was even worse. China’s recent census delivered a similar message, revealing the depth of the demographic challenge.

World population growth in 2019 was the slowest since 1952, and advanced economies outside the United States are at multi-decade lows. The combination of deteriorating demographics and the overuse of debt capital (studies appear to show evidence that higher debt levels push down on the velocity of money) are powerful disinflationary forces.

In terms of portfolio positioning, it is imperative to remain focused on the longer-term objective, but we must consider viable inflation insurance assets for part of the portfolio construction. As inflation rises above 3%, bond and equity correlation has historically turned positive. A key advantage of multi-asset investing is the ability to be flexible, and to access the widest opportunity set of asset classes.

For example, real assets like infrastructure and property look more attractive than index-linked bonds. Certain areas of the equity market can benefit too (even technology stronger pricing power and less debt), also commodities such as gold, plus silver and nickel due to demand (short and longer-term) from electronics, solar panels, EVs and the batteries used to power them.

In summary, inflation numbers in the near term will likely remain elevated. However, for the reasons discussed we believe over the medium to long-term inflation will subside from these levels. The uncertainty in the short term will no doubt create some volatility, which in turn may provide us with some attractive investment opportunities for the longer-term time is rarely an enemy. Different assets offer different levels of protection against higher inflation. Our challenge is to cut through the noise and identify those that do this best in the context of the wider portfolio.

Inflation is not the only risk investors should be considering, and thus building an all-weather multi-asset portfolio requires a disciplined process and creative philosophy, which enables us to search for and select the most optimal diversification of assets to take into account all risks, whilst being able to deliver our investment objective.

Inflation is the measurement of how much more costly a collection of goods and services has gotten over time, generally a year. It’s possible that it’s one of the most well-known economic terms. Inflation has thrown countries into a state of insecurity for extended periods of time. Many central bankers aim to be dubbed ‘inflation hawks.’ Politicians have won elections by promising to fight inflation only to lose power when they fail to do so. In 1974, President Gerald Ford designated inflation to be the No. 1 Public Enemy in the United States. So, what exactly is inflation, and why is it so critical?

Measuring Inflation

Inflation is the rate at which prices rise over time. Inflation is usually defined as an increase in the total price level or the cost of living in a country. It can, however, be computed more precisely for some items, such as food, or services, such as a haircut. Inflation, in any context, refers to how much more costly a particular set of goods and services has gotten over a given time period, most often a year.

The cost of living for consumers is determined by the pricing of a variety of goods and services, as well as their proportion in the household budget.

Government agencies undertake home surveys to identify a basket of frequently purchased commodities and track the cost of purchasing this basket over time in order to determine the typical consumer’s cost of living. (The largest component of the consumer basket in the United States is housing expenses, which include rent and mortgages.) The consumer price index (CPI) is the cost of this basket at a particular moment stated as a percentage change from a base year, and consumer price inflation is the percentage change in the CPI over a given period. (Inflation is 10% over the period of the base year CPI is 100 and the current CPI is 110.)

By removing prices set by the government and the more volatile prices of things such as food and energy, which are primarily affected by seasonal variables or temporary supply conditions, core consumer inflation focuses on the underlying and persistent trends in inflation. Policymakers also keep a careful eye on core inflation. An index with greater coverage, such as the GDP deflator, is required to calculate an overall inflation rate—for a country, for example, rather than just for consumers.

The CPI basket is typically kept constant throughout time for consistency, but it is occasionally changed to reflect changing consumption patterns, such as to add new hi-tech goods or replace ones that are no longer extensively purchased. The GDP deflator’s contents change each year and are more current than the mostly set CPI basket since it indicates how prices move on average over time for everything produced in an economy. The deflator, on the other hand, includes non-consumer items (such as military spending) and so isn’t a suitable indicator of living costs.

The good and the bad

Households are worse off if their nominal income, which they receive in current money, does not rise at the same rate as prices because they can afford to buy fewer things. To put it another way, their purchasing power or real (inflation-adjusted) income decreases. The standard of living is measured by real income. When actual incomes rise, the standard of living rises with them, and vice versa.

In actuality, prices fluctuate at various rates. Some, such as the prices of traded commodities, fluctuate on a daily basis; others, such as contract-based pay, require longer to adjust. In an inflationary environment, unevenly growing prices lower some customers’ purchasing power, and this erosion of real income is the single most significant cost of inflation.

Inflation can also affect the purchasing power of fixed-interest rate receivers and payers over time. Take, for example, retirees who are guaranteed a 5% annual rise in their pension. When inflation exceeds 5%, a retiree’s purchasing power decreases. A borrower paying a 5% fixed-rate mortgage, on the other hand, would gain from 5% inflation because the real interest rate (nominal rate minus inflation rate) would be zero; servicing this debt would be even easier if inflation were greater, as long as the borrower’s income kept up with inflation. Of course, the lender’s real income drops as a result. When nominal interest rates aren’t adjusted for inflation, some people gain and others lose purchasing power.

While strong inflation is bad for business, deflation, or declining prices, is also bad. When prices are falling, buyers postpone purchases if they can, hoping for lower prices later. For the economy, this translates to reduced economic activity, lower producer income, and slower economic growth.

The majority of economists today agree that low, stable, and, most importantly, predictable inflation is beneficial to a country’s economy. When inflation is modest and predictable, it is easier to capture it in price-adjustment contracts and interest rates, which reduces the distortionary effects. Knowing that prices would rise slightly in the future encourages customers to buy now, boosting economic activity. Inflation targeting is a policy adopted by several central banks with the primary goal of ensuring low and stable inflation.

What creates inflation?

Lax monetary policy is frequently the cause of long-term high inflation. The unit value of a currency decreases when the money supply grows too large in relation to the size of an economy; in other words, the currency’s purchasing power decreases, and prices rise. The quantity theory of money is one of the oldest ideas in economics, and it describes the relationship between the money supply and the size of the economy.

Inflation can also be caused by supply or demand-side pressures. Supply shocks that disrupt production or boost production costs, such as high oil prices, can limit total supply and contribute to ‘cost-push’ inflation, in which the motivation for price rises originates from a disturbance in supply. The global economy was hit hard by food and fuel inflation in 2008, as steeply rising food and fuel prices were passed from country to country through trade. Demand shocks, such as a stock market boom, or expansionary policies, such as when a central bank reduces interest rates or the government increases expenditure, can enhance general demand and economic growth momentarily.

If, on the other hand, demand rises faster than an economy’s capacity to meet it, the consequent strain on resources is reflected in ‘demand-pull’ inflation. Policymakers must strike the correct balance between supporting demand and growth when necessary while avoiding overstimulation and inflation.

Inflationary expectations are equally important. People and businesses include increased prices in pay negotiations and contractual price changes if they predict higher pricing (such as automatic rent increases). This behavior influences inflation in the next period because expectations become self-fulfilling once contracts are fulfilled and salaries or prices rise as agreed. And, to the extent that people’s expectations are based on the recent past, inflation will follow similar patterns over time, leading to inflation inertia.

How do policymakers deal with inflation?

The best disinflationary policies, or those targeted at lowering inflation, are determined by the causes of inflation. If the economy has overheated, central banks can use contractionary measures to cool it down, usually by raising interest rates, if they are devoted to price stability. Some central bankers have attempted to enforce monetary discipline by fixing the exchange rate—tying the value of their currency to that of another currency, and hence their monetary policy to that of another country—with different degrees of success. When inflation is driven by global rather than domestic factors, however, such interventions may not be effective.

When worldwide inflation rose in 2008 as a result of high food and fuel prices, several countries allowed the higher global prices to trickle down to their domestic economies. In rare circumstances, the government may set prices directly. In most cases, administrative price-setting measures result in the government incurring huge subsidy costs to compensate producers for lost income.

As a weapon for reducing inflation, central bankers are increasingly depending on their capacity to influence inflation expectations. Policymakers proclaim their plan to temporarily reduce economic activity in order to lower inflation, in the hopes of influencing inflation expectations and contracts’ built-in inflation component. The stronger the impact of central banks’ pronouncements on inflation expectations, the more credibility they have.