ECONOMIC
EFFECTS OF INFALTION :-
1. Effects On Production :- The producer class gain during
inflation because they produce more to meet
the rising demand. In other words, rising prices breed optimistic
expectations within the business community in view of increasing profit
margins, because the price level moves up at a faster rate than the cost of
production. Businessman are induced to invest more, and as a result employment,
output and input increase.
2. Effects On Distribution :-
a.
Debtors And Creditors :- Debtors generally gain and creditors loose during inflation. Debtors
gain because they repay the loan taken at a time when the purchasing power of
money (value of Money) is lower than when it was borrowed. The creditor on the
other hand is a looser since he receives, less in goods and services than he
would have received in times of low prices.
b. Investors
:- Those who in
debentures and fixed-interest bearing securities, bonds, etc. lose during
inflation. However, investors inequalities benefit because more dividend is
yielded on account of high profits made by joint-stock companies during
inflation.
c. Effect
On Working Class (Fixed Income Groups) :- Inflation hits wage earners and salaried people very
hard. Since wages do not rise at the same rate, and at the same time as the
general price level, the cost of living index rises, and the real income of the
wage earner decreases.
d.
Business Community (Trade And Industry) :- Inflation is welcomed by entrepreneurs and businessman
because they stand to profit by rising prices. They also find that prices are
rising faster than the cost of production, so that their profit margins is
greatly enhanced. The business community, therefore, gets super normal profits
during the period of inflation, and those profits continue to increase as long
as price rise.
e. Farmer
:- Farmers usually
gain during inflation, because they can get better prices for their harvest
during inflation.
f. We any
conclude that inflation re-distributes income and wealth in favor of
businessmen, debtor and farmers but hits consumers, creditors, small investors,
labor class, middle class and fixed income groups very hard. Inflation favors
one group at the expense of another.
SOCIAL
EFFECTS OF INFLATION :-
1.
Quality Of Goods Falls :- In order to increase more profit margin, the producers start reducing
the quality of goods.
2. Effect
On Tax Payers :- Tax
payers have to pay high taxes. Government increases the tax rate for meeting
out the extra expenditure. Thus the burden increases on the tax payers.
3.
Encourages Speculation :-Inflation gives rise to speculation. Speculation develops when
uncertainly comes in the market. The business community concentrates on
speculation and on making quick profits rather than on genuine production
activity.
4. Hoarding
And Black Marketing :- During inflation, When prices are rapidly rising, the holding of larger
stocks of goods becomes very profitable. Hoarding is encouraged, which further
decreases the available supply of goods.
When there is price rise it increases
the immorality in the country. Adulterated production of the substandrad
commodities increase. This leads to corruption, smuggling, speculation, lottery
etc. Thus inflation destroys the total network and culture of the society. It
also increases inequalities in income, creation of black money. The rich become
more rich and the poor become poorer. This results to class conflicts within
the society.
0 Comments