Effects of Inflation

There are various effects of Inflation which are broadly divided into two types;

1) Positive Effects

2) Negative Effects

1) Positive Effects:

Positive effects of Inflation are as follows;

a) Increase in Production:

When price increases, the profit margin of businessmen increases. They try to produce more goods.

b) Increase in Employment:

The businessmen employ more workers in case if rising prices so employment opportunities in the economy will rise.

c) Increase in Investment:

With the better prospect of profit, investment activities will increase.

d) Rapid Economic Development:

Increase in Production, employment level and increase in Investment are the major causes of rapid economic development and economic growth.

2) Negative Effects:

Following are the negative effects of Inflation;

a) Increase in Speculation:

Rise of prices may boast the speculation on commodities.

b) Increase in cost of Living:

Owing to inflation cost of living increases. The working class is hit hard.

c) Decline in Investment:

Due to inflation, cost of government projects increases which leads to big problem for government. Because investment may decline due to rising prices.

d) Decrease in Saving:

Consumption expenditures rise owing to increase in price level so saving of the public may decline.

e) Decrease in Exports:

When price of goods increases within the country, demand for it's products in foreign markets falls. As a result exports of the country reduce.

f) Unequal Distribution of Income:

Due to inflation, rich becomes more richer and poor becomes more poorer. The gap between rich and poor becomes wider, which leads to increase in unequal distribution of wealth.