Question

How Can Inflation Be Good for the Economy?

Summarize your findings using at least 250 words and provide a minimum of one reference.

Answer 1

Inflation is a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over a period of time. It is the constant rise in the general level of prices where a unit of currency buys less than it did in prior periods.

Inflation can be good for the economy due to the following reasons;

1. When there is unused labor or resources, inflation theoretically helps increase production, this helps an economy to run at its full capacity.

2. More dollars results in more spending, which equates to more aggregated demand. More demand leads to an increase in production to meet that demand.

3. Inflation also makes it easier on debtors, who repay their loans with money that is less valuable than the money they borrowed, encouraging borrowing and lending, which again increases spending on all levels. A moderate inflation rate reduces the real value of debt

4. There is a inverse relationship between inflation and unemployment, rising unemployment can be reduced with increased inflation.

5. Moderate rates of inflation are a sign of a healthy economy. With economic growth, we usually get a degree of inflation.

The reference referred here is The Inflation Crises and how to resolve it.