Benefits or Advantages Of Inflation
Positive impacts or advantages of inflation can be expressed as follows:
1. Beneficial For Investors
Price of commodities increases because of inflation. In this situation investors and producers can be benefited because of the increase in the value of stock.
2. Economic Growth
Producers try to increase their production capacity because of increase in the price of goods. It helps to utilize unused resources and labor. Inflation also helps to adjust relative price and wages. So, mild inflation is useful for the economic growth of the country.
3. Devaluation Of Debt
Value of debt will be decreased at the time of inflation because of the decrease in the value of money. So, debtors can repay their loan easily.
4. Easy Borrowing
Financial institutions get more money because of increase in wage and sufficient deposit. It makes easy for the people to borrow money from banks.
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5. Better Than Deflation
Deflation causes decease in the price of goods and services which stops the circulation of money. It increases the value of debt and discourages borrowings. So, inflation is far better than deflation.
4. Business Uncertainty
Drawbacks Or Disadvantages Of Inflation
Negative effects or disadvantages of inflation can be expressed as follows:
1. Discourage Saving
Due to the decrease in the value of money, more money is required to satisfy the daily needs of people. It makes high cost of living. So, inflation discourages saving.
2. Decrease In Investment
Because of more expenditure and less saving, capital formation will be reduced which leads to decrease in investment.
3. Unemployment Problem
Due to inflation, cost of production become high. On the other hand, investment capacity is decreased. So, unemployment problem may arise because of decrease in production.
Inflation discourages foreign investment in the country. It also effects import and export business. So, it creates business uncertainty.
5. Economic Instability
Inflation is responsible for high cost of living, reduction in saving, investment and unemployment which may encourage black marketing, robbery, theft etc. So, it may create economic instability.
Pros And Cons Of Inflation In Short
Pros:
- It increases the value of stock
- It is useful for economic growth
- It becomes easy for debtors to repay loan
- It encourages maximum utilization of factors of production because of increase in the market price of products
- It becomes easy to borrow money from financial institutions
Cons:
- It lowers saving because of high cost of living
- It discourages investment because of less saving
- It may create unemployment problem
- It brings economic instability in the country
