State one favourable impact of inflation on the farmers and on the government.
On the Farmers:
Farmers gain during inflation. The prices of
farm products go up and the cost incurred by them (like interest and taxes)
either remain constant or do not increase much, at any rate i.e., costs lag
behind prices received by the farmers. In India, during war and post-war
period, farmers were able to pay-off their old debts on account of high prices
of their products because of inflation. Moreover, farmers are generally debtors
and have to pay less in real terms, while the land revenue and taxes etc., do
not raise much. Thus, farmers stand to gain during periods of inflation.
On the
Government: In a mixed
economy, the public sector is affected by fluctuations in price level. As
prices rise, the government has to spend more on goods and services including
raw materials for carrying through their project. Estimates are revised and
taxes are raised. On the other hand, when prices fall, the government sector or
the public sector has to incur less costs.
On the Farmers:
Farmers gain during inflation. The prices of farm products go up and the cost incurred by them (like interest and taxes) either remain constant or do not increase much, at any rate i.e., costs lag behind prices received by the farmers. In India, during war and post-war period, farmers were able to pay-off their old debts on account of high prices of their products because of inflation. Moreover, farmers are generally debtors and have to pay less in real terms, while the land revenue and taxes etc., do not raise much. Thus, farmers stand to gain during periods of inflation.
On the Government: In a mixed economy, the public sector is affected by fluctuations in price level. As prices rise, the government has to spend more on goods and services including raw materials for carrying through their project. Estimates are revised and taxes are raised. On the other hand, when prices fall, the government sector or the public sector has to incur less costs.
