Under what circumstances may inflation be desirable in an economy/advantages of inflation
Mild Inflation is healthy to the economy in the following ways;
- It stimulates production of goods and services in the economy. This is due to high prices and profit margins received by producers. This leads to economic growth.
- It stimulates people’s effort to work. Individuals work hard in order to maintain their standards of living.
- It encourages forced savings. This is as a result of the high profits realized by those involved in business. This promotes investments in the economy.
- It increases employment opportunities. This is due to increased investments and economic activities taking place in the economy.
- It increases government revenue. The government taxes the high profits got by those involved in economic activities. Such revenue is used to finance recurrent and development expenditures.
- It stimulates entrepreneurial skills in the economy. This is because it encourages innovations and creativity hence increase in investments in the economy
- It encourages food production in the economy. Local farmers take advantage of the high price to produce more food to sell in the domestic market.
- It encourages labour mobility in the economy. Individuals move to other areas in search of better paying jobs so as to make their ends meet.
- It encourages the adoption of import substitution industrial strategy as a result of imported inflation. This accelerates industrialization in the economy.
- Borrowers (debtors) stand to gain as a result of mild inflation. This is as a result of a fall in the real interest rate charged on the borrowed funds by financial institutions which benefits the borrowers
- It increases resource utilization in the economy. This increases the production of goods and services.
CATEGORIES Economics
TAGS Dr. Bbosa Science