Position Paper IN Economic Development: Topic: Is Inflation Morally Wrong?

Batangas State University
COLLEGE OF ACCOUNTANCY, BUSINESS, ECONOMICS AND

INTERNATIONAL HOSPITALITY MANAGEMENT
ACCOUNTANCY AND MANAGEMENT ACCOUNTING DEPARTMENT
ECO 310: Economic Development

CITE Building, Pablo Borbon Main I, Rizal Avenue, Batangas City
POSITION PAPER
IN
ECONOMIC DEVELOPMENT
Topic: Is Inflation Morally Wrong?
Submitted to: ASST. PROF. INESIO H. SADIANGCOLOR
Submitted by: Mañibo, Jaycel Anne M.
Macalindong, Allen Cyrill P.
Macaraig, Czarina C.

Table of Contents
Executive Summary …………………………………………………………….
Introduction ……………………………………………………………………..
Issues and Research Questions ………………………………………………….
Methods Consideration …………………………………………………………
Theory and Analytic Framework ……………………………………………….
Analysis …………………………………………………………………………
Conclusion ………………………………………………………………………
Recommendations ………………………………………………………………
References ………………………………………………………………………

I. Executive Summary
In this position paper, it will be discussed about the effects of inflation, issues and
research questions, theory and analytic framework, analysis and conclusion.
Inflation is the rising price of goods and services over time. (Amadeo,
K.,2018). Inflation in a general manner affects the behavior of every people.
The choice to purchase a single product will vary for the reason that the cost of
the same product that bought a month ago maybe different from its current
price, which basically is a result of inflation. In short, inflation increases the
cost of living. Once our cost of living increases,our power to purchase certain
goods and services will decrease since it decreases the value of the money. When
the prices of essential goods or services rise, it becomes harder for the poor – with a limited
budget – to be able to afford those goods and services. Inflation brings positive and negative
effects. Mild inflation will give positive effects to the country. It can push the economy
toward better, increase the national income, encourage people ‘s passion in working, saving
and investing. In reverse, severe inflation or hyperinflation will bring negative effects. It will
reduce the people’s purchasing power for sure. Employees with fixed salaries might only be
able to fulfill half of their needs. For example, in beginning years, the salaries can fulfill 80%
of their needs, but in the next year, it only can fulfill 70% needs.
The researcher was able to know how the inflation affects the standard living of people
through gathering data from internet,books, and other sources. The researchers also deals
with the presentation of related theories, studies and literature which provided the basic
framework of the study. The statements, findings and conclusions indicate influence and
relevance to the present research. The recommendations were based on the conclusions and
purpose of the study. The researcher also recommends that a future study should be made in
relation to this matter in order for the people to have an awareness on how we must deal with

the increasing rate of inflation in the near future.
II. Introduction
World economy is a complex unity of all local economies represented in the world. Due
to the continuous processes of globalization and integration, whatever changes take place in
one country, they are easily shifted into another area along with all related effects. That could
be even compared to “the domino effect”. And it would be a very positive aspect if not for all
the bugs and issues which evolve each day on every market, either local or global, influencing
the overall situation in one country or the world economy as a whole.
Inflation is the rate at which the general level of prices for goods and services is rising
and, consequently, the purchasing power of currency is falling. Most often to be able to get a
grip of the price level experts use the consumer price index, sometimes also the personal
consumption expenditure deflator and the GDP deflator. The study of Robert James Ball
“Inflation and the Theory of Money” (2009) also offers a quote defining the whole inflation
process as “too much money chasing too few goods”. That supposedly implies the existence
of specific relation between the money, the supply of goods and their prices, which is in fact
quite easy to dispute considering the fact that this statement is not quite neutral in relation to
other economic definitions. In the situation of price level rising each unit of currency can buy
less goods and services. Based on this presumption it can be judged that inflation is also a
situation of reduction of purchasing power of a specific currency per its every unit. For the
economy it means that money lose their real value in terms of exchange and account. When
inflation rates are getting out of the recommended boundaries, inflation is causing too much
trouble. Remarkably, this damage is not only the headache of the government or the business
sector. The society also finds its own inflation costs.


According to the survey conducted by the Yale economist Robert Shiller (Shiller, 1996),
the general public finds the following inconveniences caused by the unmanaged inflation:
political instability, loss of morale and the considerable damage to the national prestige. In
many cases, as has been noted by Shiller, the news about increasing inflation rates caused
failures in the elections for some presidents and decrease in their ratings among the electorate.
The public polls also acknowledge the fact of strong dissatisfaction the public holds against
inflation and regards it as the most important national problem once it is announced (Shiller,
1996).
The movement of prices of goods and services over time is referred to as inflation. All
the things that we need in our daily life are all increase in price while the salary of the
ordinary employee still the same. Inflation is one of the main problem of most economies in
the world and influences a country’s growth in diverse ways. Inflation is a major factor that
leads to social and economic instability. Inflation means you have to pay more for the same
goods and services. The inflation rate in the Philippines, become higher with the rate of 6.4%
in August 2018. The volatility of inflation had been caused by factors such as disturbances in
agricultural food supply or movements in international oil prices which includes in the
Consumer Price Index: food and non-alcoholic beverages (39% of total weight); housing,
water, electricity, gas and other fuels (22%) and transport (8%). The index also includes
health, education, clothing and footwear with 3% each, communication and recreation and
culture with 2% respectively. Alcoholic beverages, tobacco, furnishing, household equipment,
restaurants and other goods and services account for the remaining 15%. Today if we
compare the Philippines to other Asian countries we only better than Cambodia, Laos, and
Myanmar. Many industries and business were closed while others force to lessen their
employees for them to survive. All commodities in the Philippines continue to increase in
price rapidly. Another way that can affect inflation in the Philippines is the value of

Philippine peso that become very low day by day.
Ciaran John (2019) stated that, “Inflation affects your standard of living because it can
reduce your spending power.” Retirees are often greatly affected by inflation because many
retirees live on a fixed income. While their pension income remains flat, prices rise.
Consequently, their disposable income is reduced as day-to-day expenses consume an ever
growing portion of their income. Wage earners experience the same problem if wages stay
flat or if inflation outpaces wage increases. You avoid the ravages of inflation if your income
level rises at a pace that exceeds the rate of inflation. The study of C. John (2019) states that,
“inflation can affect your standard of living by cutting the power to buy while increasing your
lifestyle experts. Standard of living is based on two factors: salary and expense. Status
between supplies and demand is one of the major reason of the inflation. Price increase just
like a number of people compete to buy a limited number of goods”. Inflation can have a big
effect on your lifestyle due to how you purchase right decreases. E. Lopez (2014) stated that,
“consumers buying power have been decrease by the high value price”. This problem makes
family live worse instead of better. Inflation makes a big problem for those have a fixed-come
earners like day-to-day basis.
According to researchers,if consumers expect inflation rates to be higher they increase
present consumption as a results of a wealth-redistribution channel, given that they have
higher marginal propensities to consume out of their wealth. Higher inflation serves as
implicit tax on paper money use by households as a medium of exchange and as a results
higher inflation periods leads to lower consumer spending in an economy since disposable
income reduces. Excessive money growth is the cause of inflation, and a slower rate of money
growth is the solution to the problem. Money has an early impact on spending and production,
but a longer period is required to slow an inflation. The length of this period has been
misjudged by many people ‘who have concluded on the basis of recent experience that

monetary actions arc ineffective.According to Miriam Caldwell (2018) the best ways to beat
inflation is to follow a budget or spending plan. This will ensure that you are watching what
you spend, and are only spending what you make, regardless of how inflation affects the cost
of something, like gas. Be sure to have set budget line items for things inflation might affect,
such as clothing, good, gas, and housing. Allocate your money at the beginning of the month,
and then stick to the spending limits you have set.
III. Issues and Research Questions
This section provides the questions and issues regarding the effects of inflation in
people’s lives. Inflation means there is a sustained increase in the price level. The main causes
of inflation are either excess aggregate demand (AD) (economic growth too fast) or cost push
factors (supply-side factors). Rising wages are a key cause of cost push inflation because
wages are the most significant cost for many firms.If there is a devaluation, then import prices
will become more expensive leading to an increase in inflation. A devaluation / depreciation
means the foreign money is worth less. Therefore we have to pay more to buy the same
imported goods.If firms become less productive and allow costs to rise, this invariably leads
to higher prices. the government put up taxes, such as VAT and Excise duty, this will lead to
higher prices, and therefore CPI will increase. Those are some issues that inflation affects
people’s lives.
Once inflation sets in it is difficult to reduce inflation. For example, higher prices will
cause workers to demand higher wages causing a wage-price spiral. Therefore, expectations
of inflation are important. If people expect high inflation, it tends to be self-serving.The
attitude of the monetary authorities is important; for example, if there was an increase in AD

and the monetary authorities accommodated this by increasing the money supply then there
would be a rise in the price level.
The purpose of this paper is to show and understand the effects of inflation rate that
hinders their cost of living in everyday life. To make this possible the following research
questions are formulated.
1. How does inflation affects people’s finance?
2. How can government manage the risk of inflation to people?
3. What are the effects of inflation on monthly household expenditures of families?
4. What are the effects of inflation on recreational activities?
5. How does it affects the buying behavior of people?
IV. Methods Consideration
This part of the study presents the research design, data gathering instrument, data
gathering procedures and secondary data collection process. The group used qualitative
method because it is the best for describing, contextualizing and interpreting insights into the
concept. Due to the COVID 19 Pandemic, the researchers were not able to conduct a personal
contact interview and discussion. Research Design The descriptive research design was used
in the study to gather data and information since it is deemed to describe the nature of the
situation. According to Sevilla at al (2009), descriptive method is designed for the
investigator to gather information about the present existing conditions. It examines


phenomena, group of people, idea or theory with a particular focus on facts and conditions of
the subject.
Data Gathering Instrument
The researchers used research based method as data gathering instrument. The
researchers collected the data and information from the archival documents, government
sources and articles from the internet. The researchers used this method to know the facts
about the issues in the inflation rate. Throughout the exploration, the information was
collected using the method such as using secondary sources or topic-related concepts and
articles that are gathered mostly from old reports and other source where relevant information
has been stored. The purpose of research based method as data gathering instrument is to
inform action, to prove a theory, and to add information to developing knowledge in a field or
study.
Data Gathering Procedures
From the data that were collected from the internet, the researchers discovered facts and
evidences that were very useful and helpful for this study. The facts are mostly from the
theories and opinions of professionals that are gathered through the use of researches on the
internet. However, the data and information that were collected cannot be generalized and
limit its validity for the reason that the source is not that complex and there is a little time of
accomplishment of the position paper. But the researchers take full responsibility in gathering
data and proofs to provide enough information for the accomplishment of the position paper.
V. Theory and Analytic Framework


Different economists have presented different theories on inflation. The economists who
have provided the theories of inflation are broadly categorized into two labels, namely,
monetarists and structuralists.Monetarists associated inflation to the monetary causes and
suggested monetary measures to control it. On the other hand, structuralists believed that the
inflation occurs because of the unbalanced economic system and they used both monetary and
fiscal measures together for sorting out economic problems.
Market-Power Theory of Inflation:
According to the advanced version of market power theory of inflation, oligopolists can
increase the price to any level even if the demand does not rise. This hike in price levels
occurs due to increase in wages (because of trade unions) in the oligopolistic industry. The
increase in wages is compensated with the hike in prices of products. With increase in the
income of individuals, their purchasing power also increases, which further results in
inflation. Monetary policy can reduce the rate of inflation by raising the interest rate and
regulating the credit flow in the market. However, it would have no effect on the oligopolistic
price as the cost is transferred to the prices of goods and services.
Conventional Demand-Pull Inflation:
The market power theory of inflation represents one extreme end of inflation. According
to this theory inflation exists even when there is no excess in demand. On the other end, the
conventional demand-pull theorists believed that the only cause of inflation is the excess of
aggregate demand over aggregate supply.
In full employment equilibrium condition, when demand increases, inflation becomes
unavoidable. In addition in full employment condition, the economy reaches to its maximum

production capacity. At this point, the supply of goods and services cannot be increased
further while the demand of products and services increases rapidly. Due to this imbalance
between demand and supply, inflation takes place in the economy.
Structural Theories of Inflation:
Apart from the two extreme ends mentioned in the above, there is a middle group of
economists called structural economists. According to structural theory of inflation, market
power is one of the factors that cause inflation, but it is not the only factor. The supporters of
structural theories believed that the inflation arises due to structural maladjustments in the
county or some of the institutional features of business environment.
Mark-up Theory:
Mark-up theory of inflation was proposed by Prof Gardner Ackley. According to him,
inflation cannot occur alone by demand and cost factors, but it is the cumulative effect of
demand-pull and cost-push activities. Demand-pull inflation refers to the inflation that occurs
due to excess of aggregate demand, which further results in the increases in price level. The
increase in prices levels stimulates production, but increases demand for factors of
production. Consequently, the cost and price both increases.
In some cases, wages also increase without rise in the excess demand of products. This
results in fall in supply at increased level of prices as to compensate the increase in wages
with the prices of products. The shortage of products in the market would result in the further
increase of prices.
VI. Analysis
Inflation is one of the most important macroeconomic variables and the most feared

by the economic actors, including the Government, because it can bring bad influence on the
structure of production costs and the level of welfare. And the wider effects such as
instability, economic growth, the declining of competitiveness, the interest rate, uneven
income distribution and unemployment is increasing. Some of the countries that have
experienced hyperinflation showed that poor inflation would lead to social and political
instability, and did not create the economic growth (Sukirno, 2004). Inflation is used as one of
barometer tool to measure the health rate of an economy. Inflation that is too high will
decrease the level of social welfare. Conversely, too low inflation reflects the economy which
does not run maximally which impact on slowing economic growth, stagnant job creation,
and increased poverty community.
The Philippine Statistics Authority (PSA) releases inflation data every 1st week of the
month for the public to be aware of just how much prices have changed compared to a year
ago.
Inflation can be caused by excess/pull request (liquidity/money/currency) occurs due
to excessive total demand which is usually triggered by a flood of liquidity in the market
resulting in a high demand and trigger changes in the price level. Increasing the volume of the
medium of exchange or liquidity associated with the demand for goods and services resulting
in increased demand for factors of production. The increasing demand for production factors
causing prices to rise. While inflation insistence costs (cost push inflation) occurs due to the
scarcity of production and/or also includes the scarcity of distribution. The lack of launch of
distribution flow or the reduction of production provided from the average normal demand
could trigger a price increase in accordance with the legal validity of the demand-supply. The
cause of inflation may be driven either by supply or demand. Supply-driven or cost-push
inflation happens when the cost of producing goods, the prices of raw materials and wages go
up. In this scenario, there are fewer goods being produced due to the high costs of production,

yet demand remains consistent. On the other hand, demand-pull inflation occurs when
people's demand outpace the ability of industries to supply goods.
The effect of inflation to the people is you need to pay more for the same goods and
services. One could also think of inflation as a reduction of the value of money, as consumers
are able to purchase less than before. As inflation rises, the value of the peso diminishes more
quickly. Elevated prices of goods hit hardest those consumers who have not received salary
increases over time. In effect, people have to constantly get a raise to keep up with the prices
of goods. High inflation is also not good for people who have long-term investments in banks,
as it may erode the value of money.
Inflation is not bad all the time because the government wants inflation, but only within
an acceptable range. For instance, economic managers want inflation for 2018 to 2020 to
settle between 2% and 4%. The problem, however, is that inflation in 2018 continues to shoot
up beyond the target range. Revising monetary and trade policies, as well as providing
subsidies to the poor, are only some of the ways by which the government can restrain
inflation within the acceptable range. Inflation, especially when it is demand-driven, is an
indicator that people have more money to spend and reflects a growing economy. The
government is also avoiding deflation, or the decline of prices of goods. While it may sound
good, deflation is an indicator of anemic or poor economic activity. Low consumption slows
down the economy, which would then lead to fewer jobs and opportunities.
VII. Conclusion
Based from the data gathered, the following conclusions were formed to clarify the

issues of the topic:
1. The Relation of salary and expense. Status between supplies and demand is one of the
major reason of the inflation. Price increase just like a number of people compete to
buy a limited number of goods. Inflation can have a big effect on lifestyle due to how
people purchase right decreases.
2. Impingement of Inflation increases the cost of living. Once our cost of
living increase our power to purchase certain goods and services will
decrease since it decreases the value of the money. When the prices of essential
goods or services rise, it becomes harder for the poor, with a limited budget to be able
to afford those goods and services. Inflation brings positive and negative effects. Mild
inflation will give positive effects to the Philippines.
3. In the absence of Inflation, consumers buying power have been decrease by the high
value price. This problem makes the Pilipino family live worse instead of better.
Inflation makes a big problem for those have a fixed-come earners like day-to-day
basis. That’s the reason why the researchers wind up the increase in Inflation.
VIII. Recommendation
Inflation's effects on an economy are various and can be
simultaneously positive and negative. Negative effects of inflation include an increase in the
opportunity cost of holding money, uncertainty over future inflation which may discourage
investment and savings, and if inflation is rapid enough, shortages of goods as consumers
begin hoarding out of concern that prices will increase in the future. Positive effects include
ensuring that central banks can adjust real interest rates and encouraging investment in non-
monetary capital projects. Therefore recommendations can be made that monetary authorities
should put measures that can promote positive changes in GDP. However, monetary and

fiscal policies can be employed to contain inflation within the desired limits. This can be
coupled with subsidies to lower costs of production. In relation to this notion, individually on
firm level are advocated to undertake measures that will result in increase in productivity.
Such measures may include investing in efficient technology or better methods of production.
The increase in imports can be seen to be inflationary and thus measures must be
implemented to combat the soaring import levels. This might be done so as to discourage
imports in favor of domestically produced products. Such measures may include availing
incentives and other schemes to domestic producers so that they remain competitive and
producing quality products at affordable prices and costs. Moreover, measures and schemes
can be used to promote imports of productive goods or goods that are strategic to the
functioning of the economy.
From the positive short run relationship between gross savings and gross domestic
product policy implications must therefore be designed in a manner that promotes individuals
to save more. As such can encompass increasing interest rates on deposits and lowering
deposit fees. An increase in interest rates on savings deposit is therefore a means to
continually lure customers to save more. This should be coupled with reduction in deposit fee.
Measures are also recommended that steps be undertaken to promote economic
growth by creating employment, investing in capital accumulation and technological
advancement. Moreover, economic growth initiatives can be enhanced through strategic
imports promotion of capital goods that are pivotal to economic growth. Such imports of
capital goods can be incentive or can involve import schemes being given to strategically
important industries.
1. No deficit financing especially in the developing countries because in developing
countries this type of financing is used in non-development expenditures which do
not create employment in return it will not enhance family income, therefore, families

are compelled to get loan.
2. Tax structure should be of direct taxation system so that upper class should pay more
than the middle and lower class.
3. Prompt and direct intervention of government on prices of food items resultantly
providing safe guard to middle as well as lower class
4. Minimum wage level should correspond to the expected inflation rate which would
facilitate to maintain living standard each class.
IX. Reference/Sources
https://fee.org/articles/inflation-is-a-moral-problem/
https://businessmirror.com.ph/2019/10/08/good-inflation-and-bad-deflation/
https://www.thebalance.com/inflation-impact-on-economy-3306102
https://www.academia.edu/39549482/Research_Paper_-
_Inflation_Rate_in_the_Philippines
https://www.economicsdiscussion.net/inflation/top-6-effects-of-inflation-
economy/26075
X. Appendices
CURRICULUM VITAE

Mañibo, Jaycel Anne M.
Gasang, Mabini, Batangas
09758889876
jaycelmanibo0024@gmail.com
EDUCATIONAL BACKGROUND
Tertiary Batangas State University
Rizal Avenue, Batangas City
Secondary Mabini College of Batangas Inc.
J. Panopio St., Poblacion, Mabini, Batangas
Primary Gasang Elementary School
Gasang, Mabini, Batangas
PERSONAL INFORMATION
Age 19
Gender Female
Date of Birth December 24, 2000
Place of Birth Canubing II, Calapan City, Oriental Mindoro
Religion Roman Catholic
Civil Status Single
Name of Father Emmy Serrano Mañibo
Name of Mother Teresita Maranan Mañibo
CURRICULUM VITAE

Macaraig, Czarina C.
Natunuan, San Jose, Batangas
09997183700
czarinamacaraig@gmail.com
Secondary St. Joseph Academy
San Jose, Batangas
Primary Tugtug Elementary School
Tugtug, San Jose, Batangas
2012-2013
Age 19
Gender Female
Date of Birth April 10, 2001
Place of Birth San Jose District Hospital, San Jose, Batangas
Civil Status Single
Name of Father Primo H. Macaraig (+)
Name of Mother Loida C. Macaraig


CURRICULUM VITAE
Sitio Talon, Bagong Tubig, Calaca, Batangas
09557235352
Macalindongallen789@gmail.com
Secondary Dacanlao G. Agomcillo National Highschool
Dacanlao, Calaca, Batangas
Primary Calaca Central School
Poblacion, Calaca, Batangas
2012-2013
Age 18
Gender Male
Date of Birth November 14, 2001
Place of Birth Bagong Tubig, Calaca, Batangas
Civil Status Single
Name of Father Conrad B. Macalindong
Name of Mother Calixta P. Macalindong


Prepared for:
Asst. Prof. Inesio H. Sadiangcolor
(ECO 310: Economic Development)
Prepared by:
Group 10 (BSMA 1203)
Leader: Mañibo, Jaycel Anne M.
Members: Macaraig, Czarina C.

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Batangas State University

COLLEGE OF ACCOUNTANCY, BUSINESS, ECONOMICS AND

ECO 310: Economic Development

Topic: Is Inflation Morally Wrong?

Submitted to: ASST. PROF. INESIO H. SADIANGCOLOR

Submitted by: Mañibo, Jaycel Anne M.

Macalindong, Allen Cyrill P.

ECO 310: Economic Development

Executive Summary …………………………………………………………….

Issues and Research Questions ………………………………………………….

Methods Consideration …………………………………………………………

Theory and Analytic Framework ……………………………………………….

ECO 310: Economic Development

research questions, theory and analytic framework, analysis and conclusion.

K.,2018). Inflation in a general manner affects the behavior of every people.

price, which basically is a result of inflation. In short, inflation increases the

and investing. In reverse, severe inflation or hyperinflation will bring negative effects. It will

ECO 310: Economic Development

the increasing rate of inflation in the near future.

the overall situation in one country or the world economy as a whole.

sector. The society also finds its own inflation costs.

ECO 310: Economic Development

culture with 2% respectively. Alcoholic beverages, tobacco, furnishing, household equipment,

ECO 310: Economic Development

Philippine peso that become very low day by day.

Consequently, their disposable income is reduced as day-to-day expenses consume an ever

earners like day-to-day basis.

According to researchers,if consumers expect inflation rates to be higher they increase

present consumption as a results of a wealth-redistribution channel, given that they have

ECO 310: Economic Development

and then stick to the spending limits you have set.

III. Issues and Research Questions

will become more expensive leading to an increase in inflation. A devaluation / depreciation

of inflation are important. If people expect high inflation, it tends to be self-serving.The

ECO 310: Economic Development

would be a rise in the price level.

questions are formulated.

1. How does inflation affects people’s finance?

2. How can government manage the risk of inflation to people?

3. What are the effects of inflation on monthly household expenditures of families?

4. What are the effects of inflation on recreational activities?

5. How does it affects the buying behavior of people?

IV. Methods Consideration

situation. According to Sevilla at al (2009), descriptive method is designed for the

investigator to gather information about the present existing conditions. It examines

ECO 310: Economic Development

Data Gathering Instrument

Data Gathering Procedures

V. Theory and Analytic Framework

ECO 310: Economic Development

monetarists and structuralists.Monetarists associated inflation to the monetary causes and

fiscal measures together for sorting out economic problems.

Market-Power Theory of Inflation:

price as the cost is transferred to the prices of goods and services.

Conventional Demand-Pull Inflation:

aggregate demand over aggregate supply.

In full employment equilibrium condition, when demand increases, inflation becomes

ECO 310: Economic Development