Answer to Question #54942 in Economics for Tebogo

Question

What are the remedial actions to the effects of inflation which are the distribution effect, economic effect, and the social and political effect?

Answer 1

Inflation is a continuous and considerable rise in prices in general. There are three sets of effects: distribution effects, economic effects and social and political effects.
As far as the distribution effects are concerned, inflation tends to redistribute income and wealth from creditors to debtors.
More important, however, are the economic effects, that is, those effects that impact on the performance of the economy as a whole. Inflation tends to encourage speculative activity, at the expense of productive activity, and tends to discourage saving.
Apart from its distribution and economic effects, inflation also has social and political consequences which can further undermine the performance of the economy. Price increases make people unhappy and different groups in society start blaming one another for increases in the cost of living. When rents, service charges, bus fares or taxi fares are raised, the frustration often causes social and political unrest. Inflation tends to create a climate of conflict and tension which is not conducive to economic progress.