0
Inflation is defined as a persistent increase in general price level. Inflation is measured by the proportional changes over time in some appropriate price index, commonly a consumer price index. General Price level refers to an average of all price in an economy and changes in reflect in the cost of living.
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. The existence of a medium allows trade to take place without the need for a joint coincidence of wants. A medium of exchange facilitates economic transactions. As long as the same money is going to be accepted as payment, inflation will not affect this function. But in extreme cases of inflation, people may lose confidence in money to the extent that they don't trust it, and resort to barter or some other means of conducting transactions.
Another function of money is store of value. If asset prices are stable, money is unattractive as a store of value, as it brings in no income, but if asset prices are unstable it may be worth holding some part of total assets in money, as a safeguard against risk. This is the one that inflation obviously affects the most. Inflation erodes the value of money; it does not keep its value. Something that costs a certain amount today will cost more tomorrow. This affects everything from the timing of transactions to the amount required for future payments (interest rates).
One of the roles of money is to be the unit of account in which contracts are expressed and individual incomes or firms' profits are measured. High and fluctuating rates of inflation interfere with the performance of money as a unit of account, which is believed to be bad for the efficiency and equitable running of the economy.
Wiki User
∙ 10y ago
Wiki User
∙ 11y agoThe functions of money are to serve as a medium of exchange, a unit of account, and a store of value. Inflation mainly affects the ability of money to serve as a store of value, since inflation erodes money's purchasing power, making it less attractive as a store of value. "Inflation" is defined as an increase in the overall level of prices over an extended period of time.
Wiki User
∙ 9y agoInflation affects the 3 functions of money by reducing its actual value. This requires prices to increase while wages are not adjusted.
Add your answer:
Earn +20 pts
Explain who loses from inflation and who loses from unemployment?
explain who loses from inflation and who loses from unemplyment
Explain how different monetary policies affect the money supply in the economy?
"Explain how different monetary policies affect the money supply in the economy?"
What are three ways the federal reserve can affect the money supply?
It can put a reccesion or inflation.
How does inflation affect the airline industry?
Inflation affects the airline industry in a negative ways The increase in the prices does not help the business as the purchasing value of money is usually decreased which causes huge losses to the industry.
How does the velocity of money effect inflation?
1. Velocity of money is the rate or frequency money gets exchanged over a period of time. It can be siad that Volcoity of money can be a variable that determines of inflation. It may be used as a a warning sign for hyper-inflation.
What organization most affect the money supply?
inflation
Explain who loses from inflation and who loses from unemployment?
explain who loses from inflation and who loses from unemplyment
What happens when too much money is in circulation?
Inflation happens. When the supply of money goes up. The value of money goes down. And prices go up. Inflation is not the same as rising prices. Inflation causes rising prices.
Explain how different monetary policies affect the money supply in the economy?
"Explain how different monetary policies affect the money supply in the economy?"
What are three ways the federal reserve can affect the money supply?
It can put a reccesion or inflation.
How would inflation affect any society?
Runaway inflation makes people want to spend their money now and buy durable goods like gold, houses and cars. Saving money is pointless. People with fixed incomes lose. People with money saved lose. Inflation robs people of their savings. People who owe money win.
3.How do inflation and taxes in the Philippines affect earnings on savings?
Economists often refer to inflation as the "hidden tax" on consumers. Why is inflation the hidden tax? Inflation causes saved money to have less value over time. Money that is earned today has greater purchasing power than it will in the future once the force of inflation has caused goods and services to have higher prices. Money must be interested in interest earning investments if one wishes to curb inflation to some degree.
How does inflation affect the airline industry?
Inflation affects the airline industry in a negative ways The increase in the prices does not help the business as the purchasing value of money is usually decreased which causes huge losses to the industry.
Explain the type of money that you are presently using and its function?
I currently use dollars and Euros. The function is to buy things I need and want.
What factors affect wealth of households?
too high inflation rate would decrease the purchasing power of the money in those unemploied people
What factors affect household wealth?
too high inflation rate would decrease the purchasing power of the money in those unemploied people
How does the velocity of money effect inflation?
1. Velocity of money is the rate or frequency money gets exchanged over a period of time. It can be siad that Volcoity of money can be a variable that determines of inflation. It may be used as a a warning sign for hyper-inflation.
