Positive Effects of Inflation
Inflation is an economic term describing the sustained rise in prices of goods and services within a period. To some, it indicates a struggling economy, whereas others view it as an indicator of a prospering economy. Here, we examine the favorable effects of inflation.
- Higher Business Profit
Inflation allows producers to sell their goods for higher prices, resulting in an increase in business profits.
2. Better Investment Returns
During inflationary periods, investors and entrepreneurs receive additional incentives for investing in productive activities. Therefore, they receive better returns.
3. More Employment and Better Income
As inflation leads to higher aggregate supply, there is increased demand for the various factors of production, including manpower. Therefore, employment and income increases during inflation.
4. Benefit to Borrowers
During inflation, the purchasing power of money decreases. This means that borrowers can repay back loans with currency that isn’t as valuable. This incentivizes businesses to borrow and invest and consumers to increase consumption.
Inflation has both positive and negative effects. It is a key part of contemporary economics. Printing money gives governments free access to funds and stimulates that economy to go into expansionary phases.