RELATIONSHIP BETWEEN GDP, INFLATION AND

MONOPOLY
GDP: Gross domestic product (GDP) is the monetary value of all the
finished goods and services produced within a country's borders in a
specific time period. Though GDP is usually calculated on an annual basis,
it can be calculated on a quarterly basis as well.
GDP is commonly used as an indicator of the economic health of a
country, as well as a gauge of a country's standard of living. GDP can be
used to compare the productivity of a country with a high degree of
accuracy. Adjusting for inflation from year to year allows for the seamless
comparison of current GDP measurements with measurements from
previous years or quarters.
In this way, a nations GDP from any period can be measured as a
percentage relative to previous years or quarters. When measured in this
way, GDP can be tracked over long spans of time and used in measuring a
nations economic growth or decline, as well as in determining if an
economy is in recession. GDPs popularity as an economic indicator in part
stems from its measuring of value added through economic processes. For
example, when a ship is built, GDP does not reflect the total value of the
completed ship, but rather the difference in values of the completed ship
and of the materials used in its construction.
Gross domestic product can be calculated using the following formula:
GDP = C + G + I + NX
Where, C is equal to all private consumption, or consumer spending, in a
nation's economy, G is the sum of government spending, I is the sum of
all the country's investment, including businesses capital expenditures
and NX is the nation's total net exports, calculated as total exports minus
total imports (NX = Exports - Imports).
Inflation: Inflation is defined as a sustained increase in the general level
of prices for goods and services. It is measured as an annual percentage
increase. As inflation rises, every dollar you own buys a smaller
percentage of a good or service.
The value of a dollar does not stay constant when there is inflation. The
value of a dollar is observed in terms of purchasing power, which is the
real, tangible goods that money can buy. When inflation goes up, there is
a decline in the purchasing power of money. For example, if the inflation
rate is 2% annually, then theoretically an A$1 pack of gum will cost
A$1.02 in a year. After inflation, your dollar can't buy the same goods it
could beforehand.
Causes of Inflation

Demand-Pull Inflation - This theory can be summarized as "too much

money chasing too few goods". In other words, if demand is growing
faster than supply, prices will increase. This usually occurs in growing
economies.
Cost-Push Inflation - When companies' costs go up, they need to increase
prices to maintain their profit margins. Increased costs can include things
such as wages, taxes, or increased costs of imports.
Monopoly: A monopoly is a market structure in which there is only one
producer/seller for a product. In other words, the single business is the
industry. Entry into such a market is restricted due to high costs or other
impediments, which may be economic, social or political. For instance, a
government can create a monopoly over an industry that it wants to
control, such as electricity. Another reason for the barriers against entry
into a monopolistic industry is that oftentimes, one entity has the
exclusive rights to a natural resource. For example, in Saudi Arabia the
government has sole control over the oil industry. A monopoly may also
form when a company has a copyright or patent that prevents others from
entering the market. Pfizer, for instance, had a patent on Viagra.
Monopolies affecting GDP growth: GDP is the total production that
occurs in an economy thus if prices rise due to inflation, the cost of factors
of production increases (raw material, labor, capital, etc.) and hence the
cost of production also increases.
This means that that people will buy less of that commodity due to the
increase in its price (basic law of demand and supply). If we aggregate
this phenomenon for all goods across all sectors we see a huge drop in
aggregate production which leads to a slowdown in the economy and
hence reducing the GDP.
Inflation affecting GDP growth: The relationship between inflation and
economic output (GDP) plays out like a very delicate dance. For stock
market investors, annual growth in the GDP is vital. If overall economic
output is declining or merely holding steady, most companies will not be
able to increase their profits, which is the primary driver of stock
performance.
If there is a rapid rise in commodity prices, then consumers will see a fall
in disposable income (aggregate supply will shift to the left). This squeeze
on living standards can lead to lower growth and aggregate demand.
Firms will also face rising transport costs, they may respond by cutting
down on investment. This is another factor that may push the economy
into recession.
A recession implies a fall in real GDP. An official definition of a recession is
a period of negative economic growth for two consecutive quarters.
Recessions are primarily caused by a fall in aggregate demand. This

demand side shock could be due to several factors, such as financial

crisis, rise in interest rates or fall in asset prices (like houses)
Inflation due to Monopoly: Inflation, by definition, is "a rise in the
general level of prices of goods and services in an economy over a period
of time". While it could justifiably be said that it is caused by a monopoly
ownership (he who has the supply has the power), it doesn't need to be
just one person holding the item in demand.
When a monopoly occurs, they have total control over the prices of the
product. If there is no competition, then the monopoly will rise the price so
they can maximize profit, which will cause inflation.