Short Term Effects Of Inflation

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Evaluation of inflation: Inflation is the maintained and recurred rise in the general price level or the continued change in the currency value of a specific country. According to Frisch, “inflation is a process of continuously rising prices, or equivalently, of continuously falling value of money” (pp 9-19). Inflation is a very harmful part of economics to the economy as it may bring long term effects as well as short term effects to an economy. According to economists, inflation is one of the factors why some countries lag behind in terms of development level. However, inflation is a necessary evil for the growth of any economy (Young, 1). The questions that that pop up immediately inflation is mentioned are; what are the causes of inflation…show more content…
High interest rates invite inflation by encouraging consumers to consume more and save less. This will increase the demand for goods produced and hence firms and manufacturers will produce in excess to capitalize on the high demand. High production will lead to goods produced in excess not getting bought and hence destabilizing the market since the business people will want to cut losses and will lower prices drastically hence inflation and making it a necessary evil to engage the production units of a country. Inflation has many different effects that make it to be dubbed a necessary evil. One of these effects is the continued surge in prices while salaries and wages of middle income earners continue to be the same. According to Chand, (pp 1), “The poor and middle classes suffer because their wages and salaries are more or less fixed but the prices of commodities continue to rise”. Due to this fact, the standards of living continue to decline while in the businesses its becoming a boom period. This destabilizes the economy and this may have long term effects in the future like increase in poverty…show more content…
In as much as inflation causes harm on the economy, it also helps in lifting it up and also ensuring the governing authority is executing its mandate. For example, when inflation occurs, it makes the macroeconomic sections arm of the government to review their policies and exchange systems and think of new macroeconomic policies to stabilize the economy. Moreover, inflation ensures that there is more money flowing in the economy since people literally break the banks to get cash so that their cash at hand can match the hiked prices (Chand, 1). However, this might have a long term effect of leading to a rise in a valueless currency. For example, in the case of Zimbabwe in Africa, inflation completely devalued its currency hence you might have to carry a whole large bag of solid cash and only exchange the cash with a small
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