Essay on inflation its impact 150 words

Negative effects of inflation

Thus, CPI may arise even below the full employment Yf stage. Therefore there will be greater circulation of paper money. Thus, DPI is caused by a variety of factors. Compulsory Deposit-Schemes have been introduced. Since money is also ruled by supply and demand, too much money circulating makes its value go down and therefore, prices go up. Stern measures are to be taken against such profiteers and black marketers. They disagree on causes over a shorter period. For those who borrow, this is similar to getting an interest-free loan. Inflation Rate in Zimbabwe averaged 1. In order to comprehend this inverse relationship, we must first know what inflation is, how we define unemployment, and how these two variables are connected using the Phillip Curve. External — Global inflation is an external cause of price rise.

Finally, production setbacks may result in decreases in output. Internal — These are factors that are caused by the economic and political situations inside the country.

negative effects of inflation to a country

In brief, an increase in aggregate demand i. Deflation can be defined as the decrease in the price of the goods or services provided. For instance, an increase in income leads to an increase in consumption spending which pulls the price level up.

An increase in the nominal rate of interest D. Seeing inflation, businessmen raise the prices of their products.

There is an increase in demand for products and services and due to this increased demand, prices go up. Again, CPI may be induced by wage-push inflation or profit-push inflation.

The marginal propensity to consume is the: B.

what is inflation

Similarly, beneficiaries from life insurance programmes are also hit badly by inflation since real value of savings deteriorate.

If the annual rate of inflation in an economy is anticipated correctly people will try to protect them against losses resulting from inflation.

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Essay on Inflation