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Effect of general inflation, ui.texasworkforce.org inflation may result in reduced investment in a country, pushing up interest rates, encouraging speculative investments, failure of development, economic instability, balance of payments deficits, and declining living standards and social welfare. The effects of inflation in greater detail include:
1. For people who have a fixed income, ui.texasworkforce.org inflation is very detrimental. We take the example of a retired civil servant in 1990. In 1990, pension is enough to make ends meet, but in 2003 or thirteen years later, the purchasing power of money may be only half. This means that pension is no longer sufficient to meet their needs. Conversely, people who rely on income based benefits, such as businessmen, not harmed by inflation. So it is with employees who work in companies with salaries following the inflation rate.
2. Cause people are reluctant to save because the value of the currency has declined. Indeed, savings earn interest, but if the inflation rate on the interest, the value of money still declining. When people are reluctant to save money, business and investment to flourish. Because, for developing the business in need of funds from the bank obtained from public savings.
3. For people who borrow money from a bank (the debtor), the inflation benefit, because at the time of payment of debts to creditors, the value of money is lower than at the time of borrowing. Instead, the lender or the lender will lose money because the value of refund lower than at the time of borrowing.
4. For manufacturers, inflation can be advantageous if the income is higher than the increase in production costs. When this happens, the manufacturer will temenyebabkan rising production costs and eventually harm the producers, the producers are reluctant to continue production. Manufacturers could stop production for a while. In fact, if not able to keep pace with inflation, the producer of business may be insolvent (usually occurs in small businesses).
Cause the first time this kind of inflation is an increase in total demand, (aggregate demand), while production is in a state of full employment (employment pull). when full employment is reached, then the increase in demand will only raise prices, while the increase in the number of production can not be cultivated again. This type of inflation is called inflation pure types. if the increase in demand leads to a balance, GNP GNP is above the full employment, then there inflationari gap that will eventually lead to inflation.
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