Effects Of Inflation In The Economy

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How does inflation affect an economy?
Vaganov Aleksandr Grade 10 - 6th November 2015

1.Inflation is a continuous or sustained increase in the general level of prices of “basket” goods and services in an economy over a period of time. It is not just when the prices go up for a day, then return to the normal. When the price level rises, each unit of currency buys fewer goods and use less services. Therefore, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. (https://en.wikipedia.org/wiki/Inflation ) Also, we can observe about hyperinflation in the economy. It is when the prices rise so fast that the money becomes almost worthless.
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So, the prices for imported goods are increased and became expensive. Therefore, to compensate the prices for imported products and shortage of population’s money, the government began to print more money, which led for increase of money supply and by -turn for raise of imported inflation in the country. Imported inflation is rising of import prices. Furthermore, by -turn the increase of money in population and increase of inflation rate may cause wage price spiral. In the economy, a wage-price spiral represents a circle process in which wage increases cause price increases which in turn cause wage increases. It can start because of high aggregate demand combined with full employment or due to an oil price…show more content…
However, the fixed and low-income groups, such as workers, pensioners, teachers suffer from high inflation because their profits do not increase as fast as the prices of goods and services. (http://www.preservearticles.com/2011092213869/the-effects-of-inflation-on-different-groups-of-society-are-as-follows.html)
Debtors and Creditors
During the inflation, debtors are the gainers and creditors are the losers. The debtors are stand to gain because they had borrowed the money when pursuit power of money was highland, now return the loans when the purchasing power is low because of inflation. On the hand, the creditors suffer from inflation since they get back less products than what they had lent.
Fixed and low income groups
The fixed and low income groups are the worst suffers during inflation. People who live on past savings, pensioners suffer because their income is fixed. Low income groups like teachers, workers stand to lose since their wages still remain the same. So, now they will purchase less products and services than they did when it was low

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