Question

Answer the following question in five or six sentences.
Explain the effects of Inflation on distribution.

Answer 1

• Inflation leads to unequal distribution of wealth and income in the society. So rich becomes richer and poor becomes poorer.
• Entrepreneur earns more profit. It is because prices rose faster than the cost of production. However, fixed income earners like pensioners, workers, salaried persons etc. are adversely affected by inflation because their money income remains the same while the value of money falls.
• People, who invested their money in equity shares, are the gainers because of rising prices. However, those who invest in fixed income earning assets like bonds and deposits are losers because their money income remains the same.
• Generally, debtors are the gainers because they repay less purchasing power than before when they return the debt. On the other hand, creditors lose, as they receive less in terms of real income.
  
• During inflation, big farmers are gainers because prices of agricultural goods rise. However, small farmers do not gain much as the major portion of their produce is kept for self-consumption.