benefits & costs of inflation Flashcards
what are the 8 main problems with inflation
- reduced real wages
- reduced real savings
- fewer funds available for borrowing
- reduced competitiveness
- uncertainty
- shoe leather cost
- menu cots
- poverty
what do reduced real wages mean
you can buy less with the same wage
what does reduced real savings mean
you can buy less with the same savings
what does fewer funds available for borrowing mean
people save less
what does reduced competitiveness mean
goods are more expensive than other countries
what does uncertainty mean
uncertainty of future price levels and policies
what does shoe leather cost mean
banks hold less money as cash or in accounts (people go to bank so shoes are worn)
what do menu costs mean
the cost of changing the product range
what does poverty mean
wages/savings can become completely worthless in extreme inflation cases
what are the main benefits of inflation
- inflation stimulates spending
- can reduce government debt
- higher demand for goods and services (low)
- increased savings
- encourages investment in technology
- increased consumer spending
what does inflation stimulating spending mean
businesses receive more so can create jobs and stimulate economic growth
easier to pay off debts and make investments
what does reduced government debt mean
its easier for them to borrow money
what does increased savings mean
people save as prices are likely to increase in the future
what does encouraged investment in technology mean
businesses can produce at lower costs and increase productivity
what does increased consumer spending mean
money is spent before prices increase so businesses have more to invest leading to more economic growth
