Inflation And Money

By: EconomyWatch   Date: 14 October 2010

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Inflation and money cannot be separate entities. Inflation is the increase in price levels, for a certain period of time. Inflation affects the overall financial health of a nation. Inflation can also be referred to, as the condition, when there is surplus of money as compared to goods as well as services. In other words, money is in excess.
Importance of money:
The most important function of money is that it is a medium of exchange and a store of value. Money or currency of a country differs from one another. The exchange rate or the value of money in a particular country determines all transactions pertaining to that country.
Inflation and its effects on money:
Inflation and its effects on money are plenty. Some of the important effects can be summarized below:Store of value of money is affected. This occurs due to inflation, when the purchasing power of money is impacted. This in turn diminishes money's role as store of value. Another important effect of inflation on money is, that it becomes difficult to judge the performance of a company. A slight increase in the percentage of inflation can make a marked difference in the economy of any country and affect all the macroeconomic indicators of a nation. Inflation makes the value of money weak. This is because with every passing day, the value of money decreases(while inflation prevails). Since cost of all commodities escalate, the standard of living of the common man gets affected. While the cost of goods increases, the salaries remain the same. They do not increase. So, outgoing money exceeds the inflow to keep up with inflation.
With rise in inflation, the following is affected:
  • Stock market
  • Investment
  • Exchange rates
  • Interest rates
  • Trade(export and import).

And affecting all of the above means, the value of money gets affected.


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