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.

Inflation also influences the behavior of company's employees by cutting on their purchasing power. In this way, the employees can acquire less products and services than they were able in the past, therefore reducing their standard of living and enhancing their disappointment. The disappointment can have repercussion within their activity within the ExxonMobil Corporation, so this situation can be characterized as being a sensible one.

Conclusion

Inflation is a negative macroeconomic phenomenon that distorts the economic behavior of both corporations and individuals. Measures have to be taken in order to solve this issue, so as to limit the impact of inflation on everyday operations of companies and ordinary activities of individuals.

Bibliography

1) 'Inflation outpacing growth', article on SmartMoney web site, article published by Igor Greenwald, dated on 28th of April 2005 http://www.smartmoney.com/bn/index.cfm?story=20050428085819

2) http://online.wsj.com/article/SB116537283751041900.html?mod=opinion_main_commentaries" "Irrational Exuberance, reconsidered," "Wall Street Journal Online," retrieved April 8, 2006