Inflation and the Economic Behavior

Inflation and the Economic Behavior

This report will indicate the way inflation influences the economic behavior of various economic agents, offering a clear example in this sense. The paper will be concluded by the author's remarks on the topic.

Inflation is an economic phenomenon that can be translated through a devaluation of the national currency, diminishing the purchasing power of ordinary citizens in one state. From the corporation point-of-view, inflation also distorts the economic planning of company's operational activities, especially the ones related to budgeting, investments, expenditures, invoices, receivables, and so on. The example presented in the next paragraph is targeted at offering a clearer and a more exact image of the inflation intervening within the economic behavior of corporations and individuals.

Empirical evidence

ExxonMobil, a multinational corporation, must take inflation into consideration when planning its activity in the host country. The management of the company must predict the value and impact of inflation, in the context of other economic, social and environmental factors. The devaluation of the national currency influences the level of receivables and payables the company has to face, as well as the budget, investments and expenditures plans. One viable solution to fight this macroeconomic element - inflation - is to conduct both the internal and external transactions in international and quite stable currency - like the American Dollar or the Euro.