Today it is Rs. Former leads to a rightward shift of aggregate demand curve while the latter causes aggregate supply curve to shift leftward.
Inflation affects this function in two ways: If the rate of annual price increase lies between 3 p. Now, there is a leftward shift of aggregate supply curve to AS2. This happens only when the country follows a fixed exchange rate policy. Yet if the inflation rate is low and stable, money can function better.
So the revenues of the government increase during rising prices. The purchasing power of money decreases. This is the cost of changing price lists to reflect the changing value of money.
A positive inflation rate anything greater than zero means that the interest rate is greater than 10 percent. It affects adversely the balance of payments of a country. Businessmen of all types, such as producers, traders and real estate holders gain during periods of rising prices.
This is because the poor hold what little wealth they have in monetary form and has few debts, whereas the very rich hold a substantial part of their wealth in bonds and have relatively few debts. Inflation means that the value of money decreases.
Rising inflation rate is a sign of failure on the part of the government. But which income group of society gains or losses from inflation depends on who anticipates inflation and who does not.
Standard of deferred payments means that a contract or agreement may specify or imply that the repayment of a debt be made using a particular monetary unit. With a high rate of inflation, the real value of debt erodes.
Additional purchasing power means additional aggregate demand. Inflation also affects another function of money known as standard of deferred payments.
Firms buy these inputs now at a higher price. Mild inflation has an encouraging effect on national output. Again, following hyperinflation, export earnings decline resulting in a wide imbalance in the balance of payments account.
Inflation causes misallocation of resources when producers divert resources from the production of essential to non-essential goods from which they expect higher profits. Its intensity or pace may be different at different times.Inflation however affects many thing one being function of money such as medium of exchange, store of value, unit of account and standard of deferred payments.
Medium of exchange means that any item that is widely acceptable in exchange of goods and services. How does inflation affect the functions of money? Update Cancel. Answer Wiki. 6 Answers. Aaron Brown, deprives the money of the ability to perform their functions. Making money permanently znetsinyuvanni, inflation calls into question the function of money as a measure of value.
Inflation affects the function of money through following. Inflation alludes to a sustained general rise in the monetary values of goods and services. In other words. it means a rise in the degree of cost of life.
Money Read More "How inflation affects the functions of money? Essay". Essay on Inflation: Types, Causes and Effects. Article Shared by. According to classical economists or monetarists, inflation is caused by the increase in money supply which leads to a rightward shift in negative sloping aggregate demand curve.
Essay on the Effects of Inflation. Explain how inflation affects the functions of money. Inflation is the general increase in the price level over a period of time.
Money is something that is generally acceptable in the exchange of goods and services. When inflation occurs, the value of money decreases as the same amount of money can’t buy the same amount of products like before.
Inflation means an increase in the general price level. An inflation rate of 10% means that the average price level rises by 10%. Inflation means that the value of money decreases.Download