Inflation can be defined as a persistent rise in the general level of prices or alternatively, a persistent fall in the value of money. Two years back the economy in my country suffered inflation whose effects were felt in all sectors of the economy. I was employed in a manufacturing company and my employers cost of production doubled. Being an economist he was aware of what his employees were going through in terms of purchasing power. The increased cost of production (i.e. raw materials) was a hindrance to salary increment. The remaining option was to cut down on my expenditure since prices of most commodities had almost doubled. I was also forced to commute to work so as to save what I could have spent on fuel. However, this did not last for long, the economy stabilized and put as back to our purchasing power.
I am an accountant by profession my employment prospects include developing my career, raising my standards of living through improved financial status and accumulating wide knowledge and skills a thing that will add to my experience in the accounting field. Realized economic growth will increase jobs in my field. This is so because a growing economy will favor investment and business expansion. This increased investment firms will create more employment opportunities for the citizens and expatriates.
An accountant in New York White plains is carrying an average of 56,632 dollars after the inclusion of bonuses and benefits. The cost of living at this city is 59,093 dollars which is higher compared to the normal 45,629. In Leeds a similar position earns an average of 46,950 dollars per year. The salaries in these two cities tend to differ since the cost of living at Leeds is lower compared to that one in New York. There is increased demand and supply of labor in New York as opposed to Leeds.
Quantity theory of money explains why wages differ in the two cities. Increased rate of inflation in one city results to people postulating a direct proportional relationship between the supply and level of prices if the quantity of money is doubled, prices would double and so on.
Tight monetary policy (contractionary) translates into a reduction in money supply and a considerable increase in interest rate. Inflation will be checked and prices of goods and services will thus not increase. The employer will have limited ability to access money as a result of reduced money supply. Profit earned will have a stronger value of money and the employer will be enjoying the scenario. The cost of production would not increase and employees will have more money value attached on their salary which will satisfy even the employer.
Under easy monetary policy (expansionary) inflation rate will rise thus increasing the cost of production. This will result to a fall in the value of money thereby constraining the employee as well as the employer. The employee will not like such a scenario to occur since the employee might also demand a pay increase.
References
David, C. (2000): The Spread of Economic Ideas, Cambridge, Cambridge UniversityPress