Business Cycles and Concepts

Abstract

This paper will discuss the research of 1 economic concern in Venezuela, South America. The concern is inflation; the paper will show the relationship between inflation and the economy of South American. The paper will also discuss trends in the data sets. It will also show statistical evidence of these trends.

Introduction

As an employee of the World Bank, I have been asked to research 1 economic concern in a South American country; the country that I have researched is Venezuela. Venezuela has a population of 29,335,489 as of August 2011 and it is one of the most urbanized countries in South America. The GDP was $326 billion in 2009. Some of Venezuela natural resources include petroleum, natural gas and gold. Venezuela has a civilian elected government. The president of the country is Hugo Chavez. The economic concern I have chosen is inflation. Inflation rate refers to a general rise in prices measured against a standard level of purchasing power (Venezuela Inflation Rate, n.d.).

Inflation in Venezuela

Inflation in Venezuela for 2011 was 29.8%.

Venezuela had the 2nd highest inflation rate in the world; it is only surpassed by Ethiopia's 31.5%. This rate is one of the country's biggest problems after violent crime. The inflation rate is influenced by an expanding money supply and heavy government spending. The government is likely to spend heavy in 2012 to rev up the economy during Chavez's re-election bid, this would worsen the annual inflation.

The Law for Fair cost and Prices was put into effect on November 22, 2011 to help stabilize prices, guarantees access to goods and to attack inflation. This law will allow the government to limit the prices charged for goods and services across sectors of the economy (Reardon, 2011). Food is the principal driver of inflation in Venezuela. This law could raise consumer prices 4% once it is put into effect.

The Venezuela government dominates the economy and there is considerable income inequality in the country. Venezuela has a mixed economy dominated by the petroleum sector, both state and private sectors direct the economy, this is described as market economies with strong regulatory oversight (Background Note, 2011). The country's political and economic structure allows small elite to benefit at the expense of masses. The in the second half of 2009, percentage of poor households was 23.8% and extremely poor households was 5.9%. Real GDP contracted 3.3% in 2009; this indicated a decrease in government expenditure and private consumptions as a result in a drop of oil prices.

In 2010, the government nationalized companies in the agricultural and construction sectors, this included U.S. assets in the petrochemical and packaging industries. Threats of continuing nationalizations