Economics - A question on Inflation

Question

This is for a repeat exam next week. I have economics for dummies and make that grade in economics and i cant find the answer. Hoping you can help. This may seem stupid but my question is - What are the consequences of Inflation. Thanks a lot

Answer 1

It depends a bit on the nature of the inflation. If, for example, you inflated the currency on a certain schedule and people could rely on that schedule, it would have no particular impact. That schedule would simply be taken into account in decision making. The real impact of inflation is when it's not predictable. People make decisions one day and the government changes all the assumptions the next. In periods of inflation, people start to assume that inflation will accelerate and build that into their decision models.  

Answer 2

The consequences of inflation are an increased cost of living and increased unemplyoment. Infation can be defined as the general increase in prices. So when prices rise, businesses experience increased operating costs thus reducing their profit margins. In order to compensate for the fallen profit margins they may raise prices without raising the amount in wages paid to staff. This has a multiplier effect in the economy thus raising the cost of living and prompting staff to demand more wages. When staff demand more wages this forces businesses to raise their prices and thus a vicious cycle ensues making the cost of living dearer and increasing the competitiveness of imports

Answer 3

Inflation is an increase in the supply of money. The effect of inflation is the rising of prices. Inflation is a tax. It is the most regressive tax that can be imposed. Tennesse financed the entire state operating budget in the 1830s with the hidden tax called inflation. The consequences of inflation is to transfer wealth from the poor and middle class to the rich and the government. The rich will not take a loss on their wealth so to fight the inflation the rich do 2 things. One, they move their wealth into gold, silver and other inflation hedge assetts and the second thing they do is raise prices on the goods and services they sell. Remember you have never worked for a poor person. The rich raise prices. The consequences of inflation is the destruction of the middle class and kill the poor. The consequences of inflation also take the incentive to save away because savings will decline in purchasing power and will in the long run be worth nothing. The purchasing power of the US dollar has declinded by 97 percent since the Federal Reserve was created. In the 100 years from 1833 to 1933 the inflation rate was nine tenths of one percent. In the 10 year period from 1971 when we were totally taken off the gold standard to 1981 inflation was 266 percent. The consequences of inflation is the destruction of socities. Its as simple as that.  

Answer 4

Inflation decreases the value of a currency which means more people will have more money. SInce more people have money more money will be available within the countries system. This will decrease the value of the currency.

Since the money will now be worth less when other countries sell goods to the country which now has increased inflation the country selling the goods will demand a lot more money to make sure they are still making the same amount of profits. This will cause the value of all goods inside the country which has been effected by inflation to go up. The value of the currency would have dropped.

Let me use an example here. The value of oil recently increased to $144 dollars a barrel. Before it was $70 a barrel. America has more money in their system as stocks soared but resources available didn't increase. This made the value of the dollar drop. Saudi Arabia demanded more money for each barrel of oil because of the dollars weakened value.

There are a wide range of factors which effect the value of a currency.