0 votes
in Revision by

What are negative implication of inflation in an economy?

1 Answer

0 votes
by (59.0k points)

Some of negative implication of inflation in an economy are;

  • Reduced profits Because increase in price will lead to reduced sales volume.
  • Wastage of time because individuals may waste time shopping for reasonable prices/firms may waste time adjusting their price lists.
  • Conflicts between employers and employees that lead to strikes because employees will demand high pay but the employers will be reluctant.
  • Decline in standard of living because consumers purchasing power decreases.
  • Loss to creditors because they receive payment for credit transaction when money has lost value.
  • Retardation of economic growth due to reduced savings and investment.
  • Loss of confidence in the monetary system as a medium of exchange and store of value.
  • Adverse  effects in balance of payment because exports become expensive relative to imports.