Question

Whenever the price level of goods and services increase, people are not happy. Is inflation always that bad? Provide your view and justification to support your view.

Answer 1

Inflation refers to the rise in the general level of prices over time. The inflation rate measures the percentage growth rate of CPI from one year to the next. The purchasing power of money decreases due to inflation. In an economy, the inflation is certain not bad always because a deflation or no inflation indicates a demand collapse which is far more harmful than inflation. A nation who have inflation rate equal to its growth rate is not harmful though a nation always prefer to high growth rate and have lower inflation. For example: In America the inflation is 1.5 - 2% and the growth is 2-3% thus the equation is fine. A moderate inflation encourages buying sooner, thus helps to boost the economic growth. Thus inflation would certainly not always be bad in an economy if it is at a moderate level that matches to its growth rate in a nation.