What Is The Effect Of Inflation And Deflation On The Distribution?


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Muhammad Abdullah786 Profile
The changes in the price level alter the existing pattern distribution of income and wealth. Inflation initially activates the economy but persistent rise in the price level shakes the foundation of the economy. The effects of inflation and deflation on various group of society are:

Debtors and creditors:
When prices are rising, the debtors are the gainers and pay back the debts when the purchasing power of money is low due to inflation. The creditors no doubt receive the same amount of money but in terms of goods and services they receive less. When prices are falling, the creditors are the grains and the debtors are the losers.

During periods of rising prices:
The entrepreneurs are greatly benefited. When prices begin to raise, the cost usually lag behind as wages, rent, and interest are greatly fixed by agreement. They are not immediately raised. When a change takes place in them, the increase is not in proportion to the rise in prices. it always less than that. The result is that cost of production cannot catch of rapidly rising prices. The businessman and the entrepreneurs try to increase their profits by increasing the gap between the costs and prices. The greater the difference, the greater are the profits of the entrepreneurs.

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