inflation and economic growth

Question 1

what are some benefits of inflation

Answer 1

lower unemployment
higher consumption
inflation reduces the real value of debt
higher wages and economic growth
firms increase output

Question 2

what are some costs of inflation

Answer 2

shoe leather costs - people spend time looking for the best possible interest rates meaning there is an opportunity cost formed

fiscal drag - when workers wages increase in line with inflation they are dragged into higher tax brackets meaning they become worse off

erosion of savings - the nominal interest rate is less than inflation. Pensions are affected

reduction in export competitiveness - when inflation rises of one country in relation to another country people are less likely to purchase exports due to higher prices
hyperinflation

Question 3

short run economic growth

Answer 3

demand led growth where we are utilizing the spare capacity in the economy