To explain the quality theory of inflation we see it as founded upon the belief that a currency being used is acceptable and capable of being traded for goods and services, but also is beneficial to the buyer. However explaining how the quantity theory of inflation works is associated to the aspect of currency. This theory actually takes into account the currency's supply and demand aspects as well as its nominal value of exchange.
Inflation will create many effects upon an economy both good and bad. Inflation can target an entire society or even pin point its effects towards each industry, business or individual. The reason this is possible is because inflation itself is never evenly spread throughout society thus creating both its positive and negative effects.
Positive Effects
? Business Growth - inflation that is capable of being controlled, in that savings quite often can be invested and show growth. Opposed to where savings if held in a bank would show up as a net loss.
? Declining Debt Values - the true value of a currency will decrease as it becomes consumed by inflation. This translates to a decrease of real value on debt which would actually benefit those governments, businesses and private investors that were burdened with high amounts of debt effectively wiping out the debt completely in time.
? Increasing Stock Values - stocks previously purchased cheaper very well might increase in value and if timed correctly when sold off, would yield substantial returns.
? Increasing Asset Values - that are fixed may well increase which in-turn would make some businesses financially more stable. In a traditional sense higher prices often are a by-product of increased inflation. So in theory fixed assets would increase in value during times of high inflation.
Negative Effects
? Many costs are concealed towards reducing purchasing power. These hidden costs could prove an increased benefit to some, however harmful to many others as a whole.
? Soaring rates of inflation become harmful to the economy as a whole.
? Additional shortfalls within the markets would make it much more difficult for businesses to re- strategize, plan, budget and remain competitive for the long-term.
? Inflation could also emerge as interference for productivity, due to resources being moved away from businesses and their products and services while attempting to recover and regain profits.
? Rising inflation will additionally force labor to ask for increased salaries just to stay current with rising market conditions and higher prices on food, services and other living expenses. This ultimately will increase stress on businesses. Forcing them to boost net profits, lay off workers and increase prices for the products they manufacture. The result will only intensify the chaos on-going throughout the economy.
A small amount of inflation is always good for a society as it aids in competitiveness and more profits. An inflation rate of two to three percent is healthy but when inflation starts going out of control and worse we see runaway inflation with rates increasing at 10% per month we set the stage for hyperinflation. An economy suffering from hyperinflation will change an entire society into desperate times quickly. Sadly the United States and other nations are heading into this direction now. Get your own fiscal house in order today. Be Prepared!
Tom Genot -
Informational news, books, articles and videos to invest in gold and silver and where the best places are to buy it. Also find informational resources to educate you on alternate forms of investing and preparedness, for protecting you, your family and your assets from the pending economic crises and destruction of the US dollar. Author Tom Genot provides information and resources helpful to everyone. Insure you're prepared, while time is still on your side. Check us out at www.coinbullion.net.
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Source: http://newsandsocietyblog-economics.blogspot.com/2012/07/inflation-its-effects-created-upon.html
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