Question

In: Economics

Discuss the dangers of inflation; that is, why may it hurt an economy?

Discuss the dangers of inflation; that is, why may it hurt an economy?

Solutions

Expert Solution

Inflation can be both beneficial for economic recovery, and negative in some cases. If inflation becomes too high the economy can suffer; conversely, the economy can prosper if inflation is controlled and at reasonable levels. The employment increases with controlled, lower inflation. Consumers are getting more money to buy goods and services, and the economy is benefiting and increasing. Inflation's impact on economic recovery, however, can not be assessed with complete precision. Some background details will explain why inflation's economic outcomes will differ as the rate of inflation changes.

The net effect of inflation is it serves to transfer money to debtors from savers and investors. It punishes those who have postponed their enjoyment and invested in constructing roads, schools, factories and businesses — and it gives their reward to those who are in debt. Some would argue it's a moral injustice, mostly caused by governments printing money to cover expenses that can not be paid out of revenue from the general treasury.


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