Under what circumstances may inflation be desirable in an economy/advantages of inflation

Under what circumstances may inflation be desirable in an economy/advantages of inflation

Mild Inflation is healthy to the economy in the following ways;

  1. 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.
  2. It stimulates people’s effort to work. Individuals   work hard in order to maintain   their standards of living.
  3. 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.
  4. It increases employment opportunities.  This is due to increased    investments    and economic activities taking place in the economy.
  5. 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.
  6. It stimulates entrepreneurial skills in the economy. This is because it encourages   innovations and creativity  hence  increase  in investments   in the economy
  7. 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.
  8. 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.
  9. It  encourages  the  adoption  of import  substitution  industrial  strategy  as  a result  of  imported inflation.  This accelerates   industrialization    in the economy.
  10. 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
  11. It increases resource utilization in the economy. This increases the  production    of  goods  and services.
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