Effect Of Inflation, Pro and Cons Of Inflation

This graphical record above show the inflation stray and gdp rate in Malaysia for the year 2005 until 2012. http//zaidzainuddin. wordpress. com/2012/12/14/the-effect-of-inflation-on-malaysias-economic-growth/ The effect of inflation on economic growth is debatable and passel act as either a positive or a negative influence. Local and international researchers have conducted studies on the family of Malaysias inflation rate and economic growth. It can be concluded that over the past decades, in that respect has been a general non-linear relationship between inflation rate and economic growth in Malaysia.However, in the big run inflation has a positive effect on Malaysias economic growth. This correlates with econometric study as they too reported a positive impact of inflation in the long run. Pro & Cons Of Inflation Inflation may have a positive effect in Malayan economy. This is because deflation is very harmful, inflation enables adjustment of prices and wages and march on economy growth. The first advantage is deflation is very harmful. Deflation is a negative effect of inflation. For example, the Japanese economy has suffered lower growth because of deflation.When prices ar falling people are reluctant to spend money because they are concerned that prices will be cheaper in the future, therefore, they keep delaying purchases. back advantage is moderate inflation enables adjustment of prices and wages. It is argued a moderate rate of inflation makes it easier to adjust congener wages and prices. For example, it may be difficult to cut nominal wages (workers resent wage cut). But, if clean prices are rising, it is easier to increase good workers wages more than unproductive workers.Third advantage is inflation can boost growth. At times of very low inflation the economy may be stuck in a recession. Arguably targeting a high rate of inflation can enable a boost to growth. This view is controversial. Not all economists would support targeting a hig her inflation rate. However, some would target higher inflation, if the economy was stuck in a prolonged recession. Inflation is considered to be a problem when the inflation rate rises above 2%. The higher the inflation, the more serious the problem it is. The first problem is inflation tends to dissuade