The finance and inflation: interrelation and interaction.

Effect of inflation must be linked to issues of finance, since the phenomenon of inflation depends on financial factors;

-application of certain tax forms and methods;

- funding via the State budget actions

inflationary nature;

- ways to cover the deficit of the State budget;

- the size of the public debt.

Generally efficiency of the financial system, the coherence of the work of its institutions, can have an impact on cash flow, the velocity of money circulation.

The specifics of the financial relations in public finance, not involving the oncoming material equivalent, initially offered the opportunity to generate inflation. Financial crisis, the need to increase public spending, especially unproductive, turns this possibility into reality.

Finances and inflation are interdependent. How finance can be accelerated inflation and inflation affects the financial relations. The depreciation of money and prices leads to an increase in budget expenditures, reduce real incomes, the need to strengthen the State's tax burden, the increase in public debt caused by the deficit of the State budget.

High inflation, devalue the financial resources of the State, because tax revenue and loans come at regular intervals, therefore depreciate.

Similarly, the problem of government debt is growing, as for attracting State forced to raise loan yields its securities above the level of loan debt. Unidirectional negative financial relations and inflationary reproduction leads to negative results in the economic system.

In practice, there are two types of inflation: inflation in demand and inflation costs.

In the first case it is a consequence of increased demand for products, goods and services in connection with increasing money supply by legal and natural persons with the same or shrinking output.

In the second case, inflation causes increased costs of businesses to pay, an increase in interest rates on loans, higher prices for raw materials, consumable material, the tariffs for services (transport, energy, information, etc.).

In real economic life of these species and the attendant consequences are closely intertwined, reinforce themselves, triggering a so-called inflation spiral where higher costs as a result of higher prices of consumable components production and labor costs led to an increase in the cost of production, consumption, which requires additional growth of wages and material costs in related sectors of the economy, and so on to infinity.

Inflation develops when enough formed, and in some industries are not available, the mechanism of the market economy is competition and bankruptcy of inefficient enterprises. In conditions of free competition, with decreasing demand caused by activities to reduce public spending or credits, the enterprise is forced to either reduce production or reduce its costs. At the macroeconomic level, the Lido downturn occurs, or price reduction, or both processes simultaneously.

However, firms, companies will try to stay on the market in the hope of improving market conditions and are forced to cut prices and production costs. Effect of process on a massive scale to reduce inflation.

In the monopoly economy, this mechanism is not valid, because there is no manufacturer's suppliers choice of raw materials, semi-finished products, components, equipment, tools. It had to settle with the designated prices from suppliers and shifts the prices for their consumers, who, in turn, further-on technological process stages to the final consumer – people. In such circumstances, the measures for the control of budgetary expenditures and loans led to the decline of production. [10; p 86]

Inflation could be inspired by the foreign economic activity, it is imported and exported inflation. In the first case it is caused by excessive foreign exchange inflows and rising import prices. Received foreign currency, commercial banks deposit in the Central Bank, receiving in exchange the equivalent in national currency; liabilities of banks are increasing, allowing them to expand loan operations and credit expansion, cause a swelling money supply, to be nominated as the national currency.

Inflation is caused by increases in exports were in export prices for goods and services, leading to higher prices in countries – consumers, in particular in developing countries. Inflation contributes to the activities of international corporations – monopolies that use a dominant position in the markets. Foreign corporations are creating additional loan capital in their countries of residence and increasing demand; the additional weight of foreign currency goes into circulation and through commercial banks issued national money.

Generally, the causes of inflation are the basic contradictions of relations, and crisis economy, imbalances in its inability to self-development, low efficiency of social production.

Form of inflation is the depreciation of money and a corresponding drop in their purchasing power expressed in higher prices for products, goods and services.

The nature of inflation lies in the ability of money to relatively isolated from the movement of masses to be expressed.

Scheme 4. Causes of inflation

CAUSES OF INFLATION

Imbalances of social production

Monopolization of the economy

Excess volume of money in circulation

Public deficit

Distrust of Government

Source: Made by author of coursework.

This property, which is the basis of money, allowing them to effectively fulfill their purpose-serving product, payment operations, serve as a means of savings and cost savings. But it's the quality of money shows up if their quantity and opposing them natural-material components in accordance with established cost measure that is appointed by the State. In General, this dependence is expressed by the equation of Exchange:

P x Q = m x V

Where the left side represents the cost of the social product and the right side is the amount of money given the speed of their treatment

In the event of an increase in national production should increase in proportion to the amount of money for normal maintenance of material flows in processes of reproduction, and vice versa, by reducing the production of excess quantity of money must be withdrawn from circulation. In practice, the latter condition is not always performed for a number of reasons, which are the causes of inflation.

Modern State performs a variety of functions that require a significant amount of funding, but in the main part of the non-commodity trafficking. This is a cost of social support in public expenditure on health, on cultural and informational purposes, education, management, defense. In a healthy economy increases in such costs may facilitate its self-development as an additional effective demand to call the appropriate products, services, goods, stimulating an increase in their production and increase national production.

In the stagnant economy, there is a lack of tax revenue to finance such activities, as well as free cash from businesses and the public that could be mobilized through borrowing. In this case, the only source of data covering costs is additional share issue of money.

In addition to the responsibilities of funding non-productive sphere, the state supports the reproduction industry production, which in times of crisis are unprofitable because of the need to maintain relatively low prices of basic commodities. This support is expressed in direct appropriations, or railway, or in grants to damages or compensation for lower interest rates of banks when lending to such preferential subjects.

In all cases occur, additional cash injection into the economy generally do not provide the necessary feedback in the form properly resulting in financial resources. [11; p 56]

Inflation has a detrimental effect on productive investment, the financial situation of most people on the investment.

The fall in purchasing power of money, expressed in higher prices for goods and services, the restructuring of prices undermine the financial situation of the population, especially those groups that get low and fixed incomes. As a result the backlog growth of nominal incomes from price increases in real income is declining. Permanent inflationary depreciation of income left poverty line more and more mass population. Reduction in production process of social deprivation exacerbated by an increase in the number of unemployed persons: their content is shifted to the State in turn experiencing difficulties due to the depreciation of government revenues and rising costs, including social costs.

Heavy blow put inflation on investments: long-term investing become unmanageable due to the devaluation of financial sources. It is difficult to estimate the real cost of the project with uncertain future costs of implementing it. Rapidly rising prices of investment goods do not fit into the disposable funds of the savings account or savings from private individuals. Investment activity is weakening, threatening future production, since the existing fixed assets wear out, morally and physically obsolete. Increased wear and tear of fixed assets leads to performance degradation and a reduction in output, to relieve any proposal.

In parallel to this process is blocked by the scientific and technical development of production. This sector is experiencing the ravages of inflation because of its specificity: carrying out and implementing scientific and technical developments is not accompanied by an immediate return on investment and financing becomes unprofitable. This dooms society on scientific, technical and technological stagnation and underdevelopment and deprives the perspective of socio-economic development.

A classic source of inflation-deficit state budget-is characteristic also for Kazakhstan. While the budget deficit is a secondary factor in inflation, because inflation is called the costs and, consequently, depreciation of government revenue.

The emission of money deficit leads to inflationary depreciation of and in these processes of inflation, forming a closed causal pattern of public deficit in Kazakhstan is a permanent consequence of imbalances in the economy since the days of the Soviet Union. It was covered by large subsidies, of the federal budget. Deficiency of the budget remains under the sovereignty of Kazakhstan.

Inflation contributed to the hasty development of financial and social events, Ka imposition of new taxes that cause inflationary effect – value added tax rate of 28% from the initial, excise taxes, import and export customs duties, deductions of funds included in the cost of production is the Foundation for transforming the economy, the State employment assistance fund, a sharp increase of deductions for social security.

An additional factor is the inflation development procedure for rating interest on your credit on production costs; in the face of rising fees for credit that has led to a sharp increase in the cost of production, and the trail behind it and prices.

These factors are inspiring the inflation of production costs is inflation manufacturers

Can be considered as a factor fuelling inflation rise of social claims population in conditions of price increases, especially selected professional and social groups. [12; p 74]

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