Inflation is a phenomenon which strikes an economy when the supply of money increases without any increase in the supply of goods and services. The supply of goods and services do not increase at an equal level as the supply of money. High Inflation is a condition in which the prices of goods and services reach an all time high. The prices of goods and services increase rapidly under such a circumstance, faster than the remuneration of people. Before one can receive his/her paycheck the prices are skyrocketing. The price level during the high inflation period shoots up very high. But the increase in prices does not assure the increase in the production of goods and services. Instead the demand of goods increase and the supply decrease. The supply of money also increases. This is measured against the standard price index.
High inflation in an economy can harm the economy by affecting it in a negative way. It casts long-tem effects. High inflation reduces the incentive within the mass to save money hence it reduces the potential for long-term capital formation. The accumulation of money is perturbed by this phenomenon as the value of money hits rock bottom and people lose the spirit of saving. The consumers cannot buy the goods since the price level shots up beyond their reach. However, the high inflation also grants a positive effect to the economy by reducing the spending capability of the mass in the long-term by making goods less affordable. In this way they might be able to save some amount of money in the long run.
High inflation is not good for an economy since it dismantles the steadiness of the economy. The rising of the prices take place at an uneven rate and that makes it even more harmful. In the present times none of the economy is free from inflation but reducing the rate of inflation is probably the greatest challenge for the countries.
The US dollar is extending its gains in response to the strong US GDP figures. There are four elements of the report to note. First, the economy expanded by 4.0% in Q2, well above consensus expectations. Second, Q1 was revised to show a 2.1% contraction rather than 2.9%. Third, personal consumption improved to 2.5% from a revised 1.2% pace in Q1 (originally 1.0%). Fourth, and arguably even more significant that the growth itself is the core PCE deflator. It rose to 2.0% from 1.2%.
Professor at Columbia University. Recipient of the Nobel Memorial Prize in Economic Sciences in 2001 & the John Bates Clark Medal in 1979. Author of "Freefall: America, Free Markets", "The Sinking of the World Economy", "Globalisation and its Discontents" & "Making Globalisation Work".
Chancellor of the Exchequer of the United Kingdom from 1992 to 2007. Prime Minister of the UK between 2007 and 2010. Inaugural 'Distinguished Leader in Residence' at New York University. Advisor at World Economic Forum
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Vice President and Director of the Global Economy and Development Program at the Brookings Institution. Former Turkish Minister of State for Economic Affairs. Head of the United Nations Development Program (UNDP) from 2005-2009.
James W. Harpel Professor of Capital Formation and Growth at the John F. Kennedy School of Government in Harvard University. Director of Program in International Finance and Macroeconomics at the National Bureau of Economic Research.