Question

How does inflation affect an emerging economy, use examples to evaluate the positive and negative impacts of inflation on economic growth. include discussion on impact of aggregate demand and aggregate supply on economic growth.

Answer 1

When there would be inflation in the country the prices are rise for energy, food, commodities, and other goods and services, the entire economy is affected. ... If inflation becomes too high the economy can suffer; conversely, if inflation is controlled and at reasonable levels, the economy may prosper. With controlled, lower inflation, employment increases.

Positive impact on economic growth?

Inflation is often used to describe the impact of rising oil or food prices on the economy. For example, if the price of oil goes from $75 a barrel to $100 a barrel, input prices for businesses will increase and transportation costs for everyone will also increase. This may cause many other prices to rise in response.

Negative impact on economic growth?

The negative impact of inflation include an increase in the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings, and if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future.

When inflation increase the real thing spending things get decreases as value of money decreases. This change in inflation shift Aggregate Demand to the left/decreases.

A shift in aggregate supply can be attributed to many variables, including changes in the size and quality of labor, technological innovations, an increase in wages, an increase in production costs, changes in producer taxes, and subsidies and changes in inflation.