Disadvantages of Inflation

len Alfred Ajibola - 19th October, 2020 @ 04:39 PM

Topics in Economics

Factors affecting population in economics Advantages of Inflation Disadvantages of Inflation Concept of Inflation in Economics Scheme of work for Economics, SS1, First Term Scheme of work for Economics, SS1, Second Term Scheme of Work for Economics, SS1, Third Term Functions of the Wholesaler Advantages and Disadvantages of the Wholesaler Wholesale Market: Who is a Wholesaler? Characteristics of the Wholesaler Retail Market: Who is a Retailer and Examples of Retailers Market: Types of Market Market - What is a Market in Economics? Elasticity of Supply: Types of Supply Elasticity Supply Elasticity: Elasticity of Supply explained Demand Schedule - Types of Demand Schedule Demand: What is Demand? Law of Demand Concept and Types of Cost Supply, Supply Curve and Law of Supply

Academic Questions in Economics

Please click here to see all Questions and Answers

Which of the following is not a financial market?

  • A. Money Market

  • B. Bond Market

  • C. Foreign Exchange Market

  • D. Virtual Market

  • E. Capital Market

  • F. Stock Exchange Market

A _____ market provides a platform whereby job seekers link up with employers in an attempt to be hired.

  • A. Wholesale market

  • B. Bond market

  • C. Physical market

  • D. Virtual market

  • E. Factor Market

  • F. Labor Market

Which of the following is not a type of market based on commodities bought and sold?

  • A. Wholesale market

  • B. Bond market

  • C. Physical market

  • D. Virtual market

  • E. Factor Market

  • F. Labor Market

According to economists, a market refers to a/an _____ comprising of various buyers and sellers carrying out business transactions.

  • A. Place

  • B. Location

  • C. Entire area

  • D. Online platform

  • E. Avenue

  • F. Axis

Primary market is a type of market based on _____.

  • A. Market structure

  • B. Demand

  • C. Supply

  • D. Commodities bought and sold

  • E. Channel of distribution

  • F. Internet and world wide web

Pice elasticity of supply - Len Academy

The above diagram on the quantity supplied against a change in price is _____.

  • A. Elastic

  • B. Inelastic

  • C. Perfectly Elastic

  • D. Perfectly Inelastic

  • E. Zero Elastic

  • F. Unitary Elastic

The rate at which an increase in the price of a product translate into the product's increased production and availability in the market is termed _____.

  • A. Demand

  • B. Supply

  • C. Demand Elasticity

  • D. Supply Elasticity

  • E. Demand Curve

  • F. Supply Curve

Concerning demand curve, which of the following statement is incorrect?

  • A. It is a graphical represention of a table showing the price of commodities and quantity demanded

  • B. It can be an individual demand curve

  • C. The x-axis shows the price of commodities

  • D. The price and quantity demanded are expressed on different axis of the graph

  • E. It can be a market demand curve

  • F. All the options are correct


Although inflation can have a devastating effect on a nation's economy, it can also offer some benefits when utilized appropriately in an economy. Ironically, deflation (an opposite to inflation) can impact negatively on a nation's economy as it eventually leads it into recession.

It is important to state that inflation is necessary for a nation's economic growth. The problem here is the level or rate of inflation. Infact, low to medium inflation rates can be good for a nation while a high rate of inflation (hyperinflation) ultimately destroys the nation's economy.

You can read on black market, it's advantages and disadvantages here.

Note: Inflation will always result into a redistribution of purchasing power; and as a result, certain people or organization benefits from it while others suffer eventually.

In this article, we will focus on the disadvantages of inflation; but just before that, it will be a good idea if we understood what inflation really is.

Inflation is defined as a gradual and sustained rise in the price of goods and services in relation to their availability.

Please read more on the concept of inflation here.


Disadvantages of Inflation


  • People who hold on to large volume of money (cash) suffers

Individuals who hold on to large amount of cash, be it in their homes, offices or a safe box will eventually lose value for their money when inflation creeps into their economy.

Just before inflation, the value of money is always greater. For instance, let's assume a thousand naira could get you a bag (before inflation). However, the price of this bag will increase during inflation but yet, the cash which had been hidden somewhere remains the same. For this reason, the same bag may sell for two thousand naira (₦2,000) during inflation, thus resulting into a loss of monetary value.

You can read on scale of preference and opportunity cost here.


  • The rate of inflation growth may become unsustainable

This may result from the events of an economic boom. An instance of an economic boom in Nigeria occured during the period of 'oil boom'. Before this period, the Nigerian Naira had a higher value than the American Dollar. 

During the period of oil boom (1970s), Nigeria abandoned most of her agricultural exports and focused mainly on oil. Fast forward to 2020, the Nigerian nation has become a massive importation country and as a result, one American Dollar ($1) equals ₦385 in the parallel market.

The above paragraph explains why the Nigerian Government spend more on recurrent expenditure and less on capital budget.

Please read more on balance of trade and balance of payments here.

Based on the above fact, the cost of living has become high in Nigeria while the minimum wage remains low.


  • Inflation reduces the value of savings

People who received a fixed interest rate from their bank savings may also suffer during the periods of inflation.

As an instance, if an individual has a savings bank account that pays 2% interest rate monthly, such person may actually benefit at the initial stages (when there isn't inflation in the economy). The problem arises when inflation rises to 4%. In this case, the individual loses 2% on his or her monthly savings.

However, the interest might still look good from the account holder's perspective but in reality, he or she spends more (4% more) and receives less (2% interest) in savings. This will even be worsened when there's tax deduction on such savings.

Please read on bank notes and coins as methods of payment here.


  • People on minimum wages may suffer

If the minimum wage for a country is ₦20,000 (when there isn't inflation), the recipient may feel contented; but the question is:

What happens to the minimum wage when there's an hyperinflation?

Ideally, the government is meant to increase the minimum wage in a corresponding value as the inflation rate but this isn't always the case in some countries; thus the residents receive less (in salary) and pay more for products and services.

Please read on the concept and types of cost here.

Note: Those who receive a fixed minimum wage (or salary) during inflation may delve into criminal acts in order to make ends meet.

Please read more on reputation and how to build a good reputation here.


  • Pensioners suffer during inflation

Pensioners typically receive a fixed pension over a long period of time. During the period of inflation (where the price of goods and services are increased), the pensioners receive the same amount of money (as pension) but end up spending more. For this reason, pensions are often called defined benefit plan.

Note: Nowadays, the 'defined benefit plan' is becoming obsolete as it's been replaced by a defined contribution plan. Inflation may have little effect on pensioners with 'defined contribution plan'.

You can read on the definitions and scopes of commerce here.


  • Inflation discourages economic growth and long term investment

When an economy has an uncertain and confusing periods of high inflation, investors becomes discouraged from investing their hard earned money into such economy.

Note: Investing in a hyperinflated country may result in dalayed profits (from such investment). The investors could even end up at a loss in a constantly inflated economy.

You can read on production and examples of production here.


  • Economies become uncompetitive as a result of inflation

This instance is particularly important in countries that uses a general currency, (e.g Euro).

When there's an Inflation in one of the economies of the 'Euro-zone' countries, the specific country involved will not be able to devaluate their currency, thus canceling an attempt to restore its economy.

Need more answers to this topic? Please enter your search below:

Kindly share this article via the links below:


Please contact Alfred via the above whatsapp link for a comprehensive online academic coaching in Biology, Chemistry, Basic Science and ICT

Click here to read the amazing features of the Len Academy Smart School Software. However, contact Alfred through the above whatsapp link if you require a standard website for your business or school at an affordable price

Please click here to follow Len Academy on Google News.

Please like and follow our official facebook page here for great educational write-ups.

You can follow Len Academy on twitter here.Thank you.

Please Register here or Login here to contribute to this topic by commenting in the box below.

Amazing facts in Economics


Below are definitions of demand from the perspective of some notable professors:

The demand for goods is a schedule of the amounts that buyers would be willing to purchase at all possible prices at any one instant of a time.

Professor Mayers

Demand is the various quantities of goods that would be purchased per time period at different prices in a given market.

Professor Hibdon

The demand for anything, at a given price is the amount of it which will be bought per unit of time at the price.

Professor Benham

Generally, demand is defined as the willingness of a person, buyer or consumer to buy a specific quantity of goods or service at a given price and time.

From the above definitions, we can infer that the definition of demand is referenced to three major factors. These are:

  1. Quantity of Goods Demanded

  2. Price

  3. Time

Please read more on the concept of demand here.

In economics, we have various types of cost. These are:

  • Accounting cost

  • Economic cost

  • Outlay cost

  • Opportinity cost

  • Fixed cost

  • Variable cost

  • Direct cost

  • Indirect cost

  • Sunk cost

  • Incremental cost

  • Private cost

  • Social cost

Please read the explanations on the aforementioned types of cost here

A Black market is said to take place when there is illegal buying and selling of goods and services.

Black markets usually take place outside the government's rader and without government's knowledge so as to avoid tax or any other government regulations.

Black market presents the avenue for government prohibited goods like hard drugs, war weapons and firearms to be bought by criminals.

A black market can also occur on the web for cyber criminals or those who are involved in computer hacking. To achieve their malicious aim, these individuals will go into the dark web and purchase or rent their respective hacking tools for a fee. Normally, payments are made in crypto currencies.

However, a black market isn't generally considered as bad. Infact, it has its advantages and disadvantages.

Please read more on black market here

Below are some advantages of black market:

  • Goods and services are sold at a cheaper price.

  • It helps some people make plenty of money.

  • The illegal sales of human organs, for example, the sale of human kidneys have aided in saving some lives.

  • Some people actually depend on black market for their daily bread.

  • Some of the proceeds from black market may be utilized towards the economic growth of a nation. For instance, schools and hospitals had been built with money made from black market.

The law of supply states that:

The quantity of the supplied services or goods will increase as the price increases and they will decrease as the price decreases provided all other factors remain constant.

These constant factors are very important when stating the supply law. They include:

  • The price of input resources

  • The kind of technology used during production

  • The number of suppliers

  • The number of buyers; and so on.


A graph that shows the relationship between the price of a product or service, and its quantity supplied is the supply curve.

Supply curve can be defined as a graphical representation of the direct relationship between the prices of goods and services and the quantity supplied (of such goods and services) within a particular period of time provided all other factors remain constant.

Len Academy - Supply CurvePlease read more on the law of supply and supply curve here