Achieving Sustainable Development

Introduction

Attaining the goals of employment, growth, and stable prices are vital in achieving a stable economy. Economic growth plays a vital role in improving the quality of life and helps reduce poverty in the lives of the citizens. Sustained growth and faster progress in development efforts are contributors to the achievement of economic growth. These goals should be the priority of any country and the leading financial institution should develop policies that would see the countries attain them. In fact, the reviewing the performance any government should be based on price stability and the level of employment in the country. Modern governments should focus on meeting the goals of price stability, and full employment because they indicate the economic growth achieved by the country.

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The need to control fiscal deficit in an economy

Fiscal deficit refers to an occurrence where government expenditure surpasses its total revenue. The rate of unemployment has a close relationship with a nation’s economic output such that it reflects its revenues. This means that the output of the rates of unemployment translates to the deficit the country experiences in the revenue of the country in terms of the GDP (Bassetto & Butters, 2010). For instance, Japan had a deficit of 4.6 of its GDP according 2017 estimates (CIA, 2018). The more the rate of unemployment rises the more likely the deficit is likely to increase. Therefore, full employment is vital in helping a nation achieve economic growth and controlling fiscal deficit.

The goal of attaining full employment is a priority to many policymakers especially during the period of recession or depression when the rate of unemployment is hire. This problem was evident in most countries except Russia that did not experience the impact of high unemployment rate because of the financial crisis (Bassetto & Butters, 2010). Many countries with the characteristic of a capitalist economy seem to achieve the goal of full employment compared to countries that exhibit different economic attributes.

Inflation refers to a rise in the costs of items and a decline in the purchasing worth of a currency in a country. The economic theory of price level states that when there is persistent deficits in government budgets, inflation can easily occur. Inflation rates have an influence on the value of a country’s currency and its exchange rates with other nations. This means that it is likely to have a negative influence on the exchange rate. A country is likely to institute policies to correct inflation that occurs because of a deficit.

The goal of price stability plays an important role in economic growth of a country because it determines the purchasing power of the citizens. The price stability does not mean that the price of commodities in the country is constant over a period. The concept of price fluctuation is necessary, but it should not be to a large degree that affects the economic capability of the people (Fischer et al. 2002). The higher the price fluctuation the higher the rate of inflation, which may also have a negative impact on the economic stability of the country. Therefore, a country should focus on reducing price fluctuation, by increasing competitiveness in certain sectors, which is achievable reducing regulations.

How exchange rate differences could be used to control inflation in an economy

The exchange rate refers to the value of a currency against a currency from another country or economic bloc. These rates vary based on the economic capability of a country such that it increases with the wealth of a nation. Exchange rates can control inflation by reducing interest rates, which is likely to encourage spending that would support economic growth, thereby reducing inflation. In addition, governments can engage in activities such as increasing income tax and privatizing certain services to reduce inflation. Deregulation is also an important approach in reducing inflation as the cost of doing business is likely to reduce significantly.

It is not easy to determine an acceptable rate of inflation because of the varying factors that influence price stability such as exchange rates (Mohan, 2012). However, when a country experience a significant increase in prices as well as a decline in its price level, its economy is likely to be unstable. It is advisable to have a predictable price fluctuation that is at a manageable proportion. A reasonable level of price stability is critical in ensuring that a country can attain sustainable economic growth. In addition, this goal also helps the leading financial institution in the country institute measure that can help achieve a sustainable price regime.

The main sources of economic growth that policy makers need to take note include the ability to create capital, growth of the labor force, and advancement in the technological sector. Any country that intends to achieve high economic growth needs to ensure that it prioritizes the development of these sources of economic growth. However, there is a need to consider other issues such as the social and environmental factors meet the needs of their citizens (Darrat, 2000). Assessing these factors play an essential role in ensuring that they can meet the needs of individuals in the country especially if they coincide with the sources of economic growth.

Methods of accounting for price changes in hyperinflationary times

The International Financial Reporting Standards (IFRS) have developed measures that ensure companies in areas the experience rapid inflation are safe. These refer to the standards of inflation accounting where firms adjust their statements from time to time to correspond to the prevailing economic times. The two main methods here include the current cost accounting (CCA) and the current purchase power (CPP). Essentially, the accounting adjustment a company makes for monetary items should be subject to the recorded net profits or losses. Companies need to update non-monetary items using figures with a conversion rate that is equal to the price index at the end of the duration, divided by the price index on the date they conducted the transaction.

These methods for accounting for inflation include cutting down the government spending to sustainable levels, increase taxes, and improve economic growth, which may rely on policies to reduce budget policies. It is essential to note the relationship between fiscal deficit and the rate of inflation because it can help decision makers develop sound strategies that are useful in supporting economic growth (Acharya, 2010). The evident relationship between the two concepts is the fact that fiscal deficit has a positive impact on economic growth as depicted in the Keynesian phenomenon.

In summary, small enterprises and large corporations are susceptible to exchange rate risks that occur in the market. Sources of exchange rate risks such as political factors can lead to dire consequences to trading activities because of the low purchasing power of the currency. Meeting the goals of economic growth, price stability, and growth are key in achieving sustainable economic development. Policymakers need to focus on these goals by developing tangible policies to ensure that they meet the needs of individuals in the countries.

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References

  • Acharya, S. (2010). Macroeconomic Performance and Policies, 2000-2008. In S. Acharya and R.
  • Bassetto, M and Butters. R.A. (2010). What is the relationship between large deficits and inflation in industrialized countries? Economic Perspectives,3, 83-100.
  • CIA. (2018, February 01). THE FACT BOOK: Country Comparison :: Budget surplus ( ) or deficit (-). Retrieved from
  • Darrat, A.F. (2000). Are budget deficits inflationary? A reconsideration of the evidence. Applied Economics Letters, 7(10), 633–36.
  • Fischer, S., Sahay, R. and Vegh. C.A. (2002). Modern hyper and high inflations. Journal of Economic Literature, 40(3), 837-880.
  • Mohan (Eds.). (2012), India's economy, performance and challenges: Essays in honour of Montek Singh Ahluwalia (pp.39-81). New Delhi: OUP.

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