How Does Inflation Become Good?
December 16, 2008 6:15am CST
Hello fellow myLotters! Anyone knows when is inflation considered good? My sister is bugging me this question. For what I know, inflation is bad for the common people. This is the time when prices of goods and services go up as compared to the previous months or years... How come it can become a thumbs up? Any hint? Every clue is highly appreciated!
16 Dec 08
Inflation, in economics, is defined as the state of increasing prices. This can happen in two ways.. 1. The prices may suddenly become high. This type of inflation if not at all good for economic growth and for the people especially for the weaker section of the society as their income becomes insufficient to provide them the daily necessities. In serious cases, it may have devastating effect on people and the economy. 2. In another situation the prices of goods and services may increase gradually. In this situation people have more money in their hands as they can sell their goods and services for more money. This higher income is partly expended for other goods and services thereby increasing demand for them. And the part of income saved supples capital for producing the goods and services for which extra demand is created. Hope my point is clear
16 Dec 08
The only logical answer I can think of is that it forces human to conserve their resources. Meaning, people will make effort to save money through various ways. This will increase productivity and will reduce wastage of resources, and this is a good thing for both humans and nature. That's why the most extraordinary economic growth comes after a period of inflation. It happened in 1987, 1998 and now in 2008. The four or five years following a recession is usually the time in which the economy growth is at its best.