Discuss the various ways inflation can hinder economic activ

Discuss the various ways inflation can hinder economic activity. What are some strategies you might use in your life to deal with rising inflation? How might these strategies change if we experienced deflation?

Solution

High inflation is bad beacuse it can hinder economic growth .

1. It causes inefficiancy in the market both consumer side as well as producer side.because due to increasing price at high rate both are not certain for demand and supply side.

2.It makes people uncertain about what inflation will be in the future. This uncertainity can hinder in two ways-

a) It adds an inflation risk premium to long - term interest rate.

b) It complicates further the planning and contrating by businesses and housholds that are so essential to capital formation.

3. it also badly effect Government planning & dvelopment expenditure.

Strategies Might be Use to deal with rising inflation-

1. Be carefull about holding Cash- beacause due to rising price money value will decrease.

2.Dont make long term fixed rate loans and dont buy bonds.

3. invest in stuff( gold) rather than money.

4. Invest in long term capital gains because you will gain market profit.

We can change these strategies in the opposit ways if there will be deflation in the market.