Effects of inflation, Microeconomics

Assignment Help:

Effects of inflation:

On Income Earners:Those on fixed incomes or assets (fixed in nominal terms) lose. However, those on incomes, which are directly related to the price level, real incomes may remain relatively unchanged or may even increase.

On Profits: Generally, profits increase when the inflation is the demand pull type and decline when the inflation is the cost push type. During demand pull inflation the prices of final goods and services tend to be more flexible in an upward direction than many other prices.

On Lenders and Borrowers:Inflation tends to encourage borrowing and discourage lending. This is so because what is borrowed today which could have been used to purchase, say a bowl of gari today, would not enable the creditor to purchase the same bowl of gari when the loan is paid back. This is true only when nominal interest rate is fixed or rises at a lower pace than inflation.

On Production: Demand pull inflation may lead to inefficiency in production since competitive pressures to improve both product and performance will be greatly reduced.Cost-push inflation however, puts a premium on efficiency.

On Foreign Trade:Rising domestic prices can hurt exports.If domestic prices are rising faster than the rest of the world prices, exports will fall and imports will tend to increase and this will invariably affect our net exports and may have devastating balance of payment implications.


Related Discussions:- Effects of inflation

What is endogenous growth theory, Problem 1: Any development strategy s...

Problem 1: Any development strategy should put people first; indeed, its very effectiveness should be measured in terms of how it impacts the poor. (a) Describe the link bet

Production theory, why does gap between the ATC curve and the AVC curve dec...

why does gap between the ATC curve and the AVC curve decreases as the level of output increases

Equilibruim, I want to know all about equilibruim consumer equilibruim firm...

I want to know all about equilibruim consumer equilibruim firms equilibruim nd market equilibruim technically also??

Marginal Revenue, How do you calculate marginal revenue, and monopolistic p...

How do you calculate marginal revenue, and monopolistic profit?

Find the marginal products of capital and labour, A farmer produces maize a...

A farmer produces maize according to the following production function Q m = AK 1/3 L 2/3 Where Q m is output of maize, A = land, K = capital and L = labour Given that

Hi, I have an assignment need to be done

I have an assignment need to be done

Is 101 module 4, As you know, Northern Nevada Green Coalition is interested...

As you know, Northern Nevada Green Coalition is interested in showing how green energy production can help to grow and diversify Nevada's economy. In order to do that, we need to a

Explain the price inflation and wage inflation, What is the difference betw...

What is the difference between Price inflation and Wage Inflation?  Price inflation is the rate of enhance in the prices of goods and services whereas the wage inflation is ra

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd