INFLATION
ITRODUCTION
Inflation is considered to be a sustained
increase in the cost of living, or the general price level. It is important to
recognise that there are two main causes of inflation: demand-pull and
cost-push. The type of inflation experienced in the economy will be important
to the extent to which it can be considered harmful. For example the
implications of demand driven inflation are very different to the implications
of cost-push inflation, such as the rising oil and food prices of 2008. The
extent to which inflation is harmful is dependent on the cause of inflation and
how substantial the increase in the price level is.
Inflation: What Is Inflation?
Inflation
is defined as a sustained increase in the general level of prices for goods and
services. It is measured as an annual percentage increase. As inflation rises,
every dollar you own buys a smaller percentage of goods and services.
The value
of a rupee does not stay constant when there is inflation. The value of a rupee
is observed in terms of purchasing power, which is the real, tangible goods
that money can buy. When inflation goes up, there is a decline in the
purchasing power of money. For example, if the inflation rate is 10% annually,
then theoretically a Rs.100 pack of gum will cost Rs.110 in a year. After
inflation, your rupees can't buy the same goods it could beforehand.
Explaination
I would say depends on the causes: if it's due to demand shock (demand
pull) then to some extent, it's considered a healthy sign (since it shows that
the economy is growing). On the other hand, supply shock (cost push) is
negative since it causes stagflation, where both output falls and price level
increase. Common negatives: increasing uncertainty in consumer and investor's
confidence, reducing purchasing power, hurt people on fixed incomes.
According to me
There are many advantages and
disadvantages of the inflation.
Inflation is a measure of
economy whether shrinking or growing but mostly inflation results in shrinking
of the economy. It results in increase in prices of the day to day commodities. It also increases the interest rates, loans and other means by which the
people are borrowing or lending money. Thus, hurting regular people more.
It creates confusion, uncertainty leading to
less investment and low international competitiveness. It leads to decline in income called as stagnant wage
growth.
Inflation
is not harmful as it acts as a symptom for growing economy. Inflation allows prices of
various commodities to adjust according to the budget of the consumers. It results in people or the seller making good amount
of profit which in turn boosts the economy.
Conclusion
From
the above discussion I conclude that inflation it is harmful for the economy
because there are many negative impact of the inflation it impacts on the
common people’s life. E.g. increasing uncertainty in consumer and investor's
confidence, reducing purchasing power, hurt people on fixed incomes.
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