Question

Describe the impact of inflation to the value of currency and economy of country. What is the different between inflation and deflation?

Answer 1

Inflation has a negative effect on the currency of a country. As it decreases the value of dollar over time. Long term inflation is caused by Increase in the money supply.

Inflation effect on the economy:

Income and wealth is distributed unevenly in inflation. Production increases and economy becomes fully employed. As inflation increases the national income similarly the value of production increases resulting full employment, but the real income of an individual does not increases. Due to higher income in inflation internal trade tends to increase. Government revenue also increases as it gets increased taxes, excise duty etc. When there is a mild inflation it helps in the growth of the economy.

Inflation and deflation are the the sides of the same coin. As inflation is a condition where price of goods and services increases and deflation is a situation where price of the goods and services decreases. inflation is not seasonal and the tendency of inflation will be for the long period of time. and inflation also affects the most of the sectors that make up the economy or which helps to economy grow.

Deflation is also called negative inflation where people in the economy has lesson plan to spend over so they demand for fewer goods which results in insufficient demand. And the producers are forced to to lower down their prices of the product in order to sell out their output to avoid inventory which results in excess supply.