Question

Explain whether you agree or disagree with the following statement: ‘Inflation is a bad thing because it increases the cost of living without increasing income in general in the long run.’

Answer 1

Inflation measures increase in price of goods and services and cost of living measures the change in necessities. Inflation and cost of living are generally considered synonyms because generally when the inflation rises, then the cost of living also rises. When inflation rises, the purchasing power of consumer decreases and cost of living also increases. Consumer cannot purchase necessities related to food, healthcare products easily. In this context, inflation is a bad thing because it decreases the purchasing power of the consumer.

On the other hand, inflation can be considered good for consumers if the inflation and cost of living increases less in comparison to increase in general income. Because if general income increases more than the increase in inflation and cost of living, then the purchasing power of consumers increases then they can purchase their necessities and can spend on their expenses easily.