Question

Describe inflation effects.

Describe inflation effects.

Homework Answers

Answer #1

Here are some of the common effects of inflation:

  1. Reduction of purchasing power - Inflation is a decrease in the purchasing power of currency due to a rise in prices across the economy.
  2. Increase in expenses and decrease in savings - since due to inflation, purchasing power decreases, it follows increase in expenses and decrease in savings of households.
  3. Reduces Employment and Growth - there is less job creation and hence more unemployment during inflation period.
  4. Weakening of domestic currency - the country with the higher inflation rate generally finds its currency weakening.
  5. It helps debtors and harms lenders - Classically, inflation works in favor of people who borrow money.

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