Running head : INFLATIONNameTutorClassInstitution : is defined as a yellowish pink rise in the general price level , which is an modal(a) of the prices of all goods and services available in a turn parsimoniousness (Henderson Poole , 1991 . A utmost gear set up of rising prices is tough for the economy be gain of some(prenominal) reasons . First , a high ordinate of pretension is eer associated with significant redistribution of wealthiness . If it occurs unexpectedly , the high lump rate can cause borrowers to gain at the expense of creditors as the former pay back the borrowed amounts in less worthy currencies . Whereas such redistributions atomic number 18 not associated with wealth destruction , they are dismal for the economy as they cause the distortion of incentives . This note was witnessed during the gr eat German inflation where borrowers do massive gains objet dart lenders suffered great losses (Henderson Poole , 1991Secondly , a high rate of inflation is associated with efficiency losses on the economy .
In addition , a high rate of inflation is associated with high levels of unemployment (Krugman , 1999 . This alliance is illustrated by the Phillips curve below . As the rate of inflation rises the unemployment level increases Source : Henderson Poole (1991 is also bad for the economy because it distorts the impose system . This occurs when individuals are thrust into higher(prenominal) levy brackets as a result of higher incomes occasioned by infla! tion . Since it interferes with the motivation which the tax system gives to people in to encourage them to work , unless and invest...If you want to get a full essay, order it on our website:
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