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Positive And Negative Effects Of Inflation On The Economy

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Inflation
Inflation is referred to as a increase sustained in the general level of prices of goods and services in an economy over some specific period of time. As the price level rises, buying power of single unit of currency decreases. Thus, inflation rate is an indicator of reduction in the purchasing power per unit of currency.
It is generally believed that high rates of inflation and hyperinflation are outcomes of excessive growth of the money supply. However, growth of money supply does not necessarily results in inflation. There are a lot many views regarding the factors that determine low to moderate rates of inflation. Low to moderate inflation can be attributed to fluctuations/variations in real demand for goods and services, or changes/alterations in available supplies such as during scarcities. However, the majority view is that a sustained period of inflation is a result of money supply escalating faster than the rate of economic growth.
A low and steady rate of inflation is favored by most economists. Low inflation decreases the severity of economic recessions by providing the enabling capacity to the labor market to adjust accordingly in a downturn, and thus reduces the risk that a liquidity trap might prevent a monetary policy from relatively stabilizing the economy.
Positive/Negative Effects of Inflation Inflation can affect an economy in both positive as well as negative ways. Negative effects of inflation would include an increase in the overall

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