EFFECTS OF INFLATION AND HOW TO CONTROL INFLATION, Inflation has both positive and negative effects: (a) The positive effects of inflation (1) Reduction in burden of debt: During inflation, debtors gain because there is too much money in circulation, which enable them to pay their debts with ease. (2) Higher profit margin: Because producers are selling their goods at his prices, this will lead to higher profits.
Identify the different types of inflation, the alternative causes and control measures.
Identify the effects of inflation/deflation. Discuss Nigeria’s inflationary experience and the various control measures adopted by government. (3) Higher tax yield: As a result of his volume of money in circulation government is able to realize high yield from taxes. (4) Higher output: Higher prices of goods and services during inflation encourage producers to embark on large scale production, resulting in greater output.
(5) The negative effects of inflation It discourages savings: During inflation people spend more money, leading to low or no savings. (6) Increase interest rate: The rate a: which banks give loan to customers increase during inflation.
Identify the different types of inflation, the alternative causes and control measures.
Identify the effects of inflation/deflation.
Discuss Nigeria’s inflationary experience and the various control measures adopted by government. (7) Income redistribution: Inflation redistributes income haphazardly. There is a fall in real income especially of those on fixed income e.g. pensioners. (8) Creditor loss: The value of money received is far less than the value of me lent out. (9) Loss of value for money: Money losses its value generally during the period inflation (10) Fall in standard of living: Inflation brings lots of problems to salaries ea as they spend it on costly goods services, leading to a falling standard living.
(11) It discourages investment: Low value of money coupled with little or no savings discourages investments. (12) Balance of payment problems: Inflation causes balance of payment problems since foreigners will want to sell and also do minimal buying from countries with inflationary trend. (13) It discourages exports: High prices during inflation discourage export since such countries will be high-cost producers.
HOW TO CONTROL OF INFLATION OF ANY ECONOMY
(1) Use of monetary policies measures: The use of contractionary monetary measures such as increase in bank rate, open market operation, deposit ratio and moral persuasion can help to control inflation. (2) Use of fiscal measures: Inflation can also be controlled with the use of fiscal measures to reduce the amount of money in circulation, e.g. increase in direct taxation.
(3) Effective price control system: Inflation can also be controlled through the use of effective price control system e.g. price control board by government officials and the application of rationing to maintain price level.
Identify the different types of inflation, the alternative causes and control measures. Identify the effects of inflation/deflation. Discuss Nigeria’s inflationary experience and the various control measures adopted by government. (4) Reduction in government expenditure or surplus budget: The government should reduce expenditure and it will go a long way toward reducing the amount of money in circulation. (5) Industrialization: Industrialization will reduce over-reliance on imported goods and brings about increase in output which will reduce prices.
(6) Checking the activities of hoarders: The activities of hoarders should be checked to prevent increase in prices of goods.
Increase production: Inflation can be controlled by increasing production or output in order to bring down the prices of goods. Granting of subsidy to enterprises: Inflation can also be controlled by granting subsidy to enterprises and companies producing essential products to reduce cost of production and the products prices.
Removal of bottlenecks in distribution system: Removing bottlenecks in the distribution system i.e. provision of good road and storage facilities is another means of controlling inflation. Discouragement of importation: Government should discourage importation from countries already experiencing inflation, as a way of controlling it. Use of income policies: Use of income policies such as wage freeze and delay in promotions is equally a way of controlling inflation.
