Question

Inflationary price rise is a financial and social vice. Explain the statement.

Answer 1

At times of inflationary price rise, people whose incomes are not contractually fixed gain most because their incomes rise hand in hand with the increase in the prices in the market. For instance, in a business firm, the wage bill does not increase as fast as the price level because the wage rate is contractually fixed. But the prices at which the outputs are sold in the market increase. Hence, the profits of the producer will increase. As a result, the producers are encouraged to produce more. Hence, it is said that a certain level of inflation is beneficial for economic growth.