Positive And Negative Effects Of Inflation On The Economy
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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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Since the creation of the Federal Reserve, inflation has been a persistent, ongoing problem within the United States (Durden, 2013). Since the Federal Reserve is owned by the banks, it is not surprising that it serves the interests of the bank over the American population, and therefore goes against the idea of a free market and biblical principles (Durden, 2013). The value of money is constantly changing and it subject to manipulation by the Federal Reserve. For example, the Federal Reserve can randomly produce money, and add it to the money system, which devalues the currency already in place, and adds to inflation. This is one reason why the value of the U.S. dollar has fallen by 83 percent since 1970 (Durden, 2013).
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There has been several Different ideas to keep inflation
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Inflation is the rate at which the general level of prices for goods and services is rising, and, then purchasing power falling over a period of time. When price level rises, dollar buys fewer goods and services. Therefore, inflation results in loss of value of money.
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CHAPTER 2 LITERATURE REVIEW INFLATION (InvestorWords, 2015) stated that inflation is the increase in the general price level of goods and services in economy, normally caused by excess supply of money. Inflation usually measured by the Consumer Price Index (CPI). When the cost of producing goods and services goes up, the purchasing power of dollar will decrease. A customer will not be able to purchase the same goods and services as he/she previously could.
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