Inflation usually cause increase in prices of the country. Every single time value of money falls down and price rise up, this situation is called inflation. The question is, how this situation arise in a country? It is usually due to disturbance in equilibrium of demand and supply of the country. Or we can say that, the demand of goods is even more than the supply of goods. Well, in inflation amount of money in the hands of people is more, but their purchasing power is low. Regardless of a lot of money, they cannot buy enough goods.
"In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing value per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index, usually the consumer price index, over time. The opposite of inflation is deflation."
Effects of inflation on country:
Well, I did research on seven effects of inflation on a country. And they are:
Production units and investment in business:
As, inflation increase the price and demand of goods increases, it become a silver lining for the businessman. They start to invest more and more in business due to increasing profit margins. Businessman race in establishing new factories and chain stores of their businesses due to increasing profit, which directly result in increase in the employment of the country.
Relentless growth of economy:
Another effect of the inflation is that, economy of country grows relentlessly. National income and employment both increase continuously, not only this agriculture and industrial growth both make progress at a rapid rate.
Decrease in living standards:
In inflation prices of goods & services increase, but same cannot be said about the wages of the labors. Sometimes they increase and sometime, it does not increase. So, prices are going up and value of money is falling down at a rapid rate, the living standard of the labor decrease even more. Even though businessman is enjoying a handsome profit from business.
Balance of trade:
In every case of inflation, prices of goods go up due to which the imports and exports are greatly effected. When prices of goods go up, then people of the country start to buy goods from foreign countries. And also due to increase prices, foreign countries, who are buying goods from you stop buying goods due to increase prices of the goods. Due to which the balance of trade become unfavorable. The national income from country increase, but it is used to cover up from the loss of trade from foreign countries.
Government projects high cost:
All the government project like project of communication, dams and powers house which already required high amount of money, as prices of the goods increase in the country so does the price of the project of government increases. All the raw material required for the completion of the project is increase and hence government has to borrow money form other sources.
Unfair distribution of incomes:
When inflation occurs, the distribution of income become even more uneven. All the businessman, landlords or everyone who is involve in controlling the economy of the country get a large profit, while labors don’t even get a portion of it.