Question

Briefly explain two favourable impacts of inflation.

Answer 1

It fosters an optimistic environment in the country, providing the essential incentive to invest. The marginal efficiency of capital improves. It boosts investment. Increased investment creates more jobs and income. Increased revenue creates greater demand and thus more output. As a result, inflation encourages economic growth.

Inflation redistributes money in favour of those elements of society who are more likely to save, such as traders and industrialists. As a result, the country's savings have increased. More savings contribute to increased investment, which is critical for rapid economic development.