Economics

Advantages of Inflation

len Alfred Ajibola - 22nd October, 2020 @ 04:18 AM

Topics 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 What is a Black Market, Its advantages and disadvantages


Academic Questions in Economics

Please check out our Test Your Knowledge page to see all Questions and Answers

The following statements are true concerning explicit opportunity cost except _____.

  • A. They are recorded in the accounts book

  • B. It is a type of cost

  • C. They may also be referred to as 'out of pocket' cost

  • D. They are utilized as factors of production

  • E. Money spent on wages, salaries and raw materials are examples of explicit opportunity cost

  • F. Explicit opportunity cost are always utilized for investment

Needs / Wants

Cost (Naira)

 Phone

 50,000

 Console Game

 120,000

 Laptop

 80,000

 Ipad

 100,000

 Smart watch

 85,000

 Ipod

 40,000

 

Which of the following statement is incorrect concerning the table?

  • A. Ipod is the least important need of the individual

  • B. If the individual has 200,000 Naira at hand, then the laptop, iPad, smart watch and iPod will all be considered as opportunity cost

  • C. If the individual has 480,000 Naira, he or she will purchase all the items in the table

  • D. Console game is the most important need of the individual

  • E. The table shows a scale of preference

  • F. The individual needs an ipod

Which of the following statement is false concerning scale of preference?

  • A. It is brought about by the insatiability of human wants

  • B. It is brought about by the limitation of cash at hand

  • C. It is a list of a person's needs or wants written in an order of importance

  • D. Scale of preference cost is the value of the best alternative a person could have achieved but did not achieve it after the best choice had been made

  • E. Opportunity cost is a term associated with scale of preference

  • F. None of the above

Eonomies of scale in economics means _____.

  • A. The prices of goods will remain the same because producers manufacture similar goods

  • B. The prices of goods will fall because producers manufacture more goods

  • C. The prices of goods will rise because producers manufacture less goods

  • D. The prices of goods will rise and producers will manufacture more goods

  • E. The prices of goods will fall and producers will manufacture less goods

  • F. Equilibrium is achieved in the economy

Budget deficit refers to the amount by which _____.

  1. total expenditure exceeds revenue
  2. capital expenditure exceeds revenue
  3. recurrent expenditure exceeds revenue
  4. recurrent expenditure exceeds capital expenditure
  5. capital expenditure exceeds recurrent expenditure
  6. total expenditure exceeds capital and recurrent expenditure

What are infant industries in Economics?

  1. They are industries that are allowed enough time to mature for recognition
  2. They are industries that produce baby foods in addition to mother care products
  3. They are industries that are too young to compete in a thriving society
  4. They are industries that are constantly introducing new products
  5. They are industries that are under a parent company
  6. They are industries located in rural areas

Which of the theory did Malthus became popular for?

  • A. Population may outgrow the means of subsistence
  • B. The people will eventually decide not to have children
  • C. The death rate may become so high that people may not be able to produce
  • D. Migration of people from one place to another may leave the world barren
  • E. All of the above

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Advantages of Inflation:

Inflation is not always a bad event. Infact, deflation (an opposite to inflation) can prove very harmful to a nation's economy.

Please read more on the concept of inflation here.

Although inflation is said to occur when there is a general increase in the price of goods and services, the pace at which this increase occur is what's of interest here.

If the price level increases slowly or moderately, then the effects of inflation can be advantageous, otherwise it becomes devastating if price increases in a rapid, sudden and unpredictable pattern.

Please read on the disadvantages of inflation here.

Below are some of the advantages of inflation in an economy:

 

  • Inflation is better off in comparison to deflation

Deflation is bad for an economy. It will surely lead to recession, depression and a lack of investment into such economy.

Conversely, inflation in required for the growth of an economy. Although not all economist are in support of a high inflation rate, a moderate and gradual inflation rate will eventually result into a standard living for both the citizens and residents alike.

You can read on the rights of citizens and attributes of residents here.

In 2013/2014, an instance of little economic growth occured in the Euro-zone countries as a result of a very low inflation rate; and this eventually led to an increased rate of unemployment.

Note: Had it been the Euro-zone aimed at a higher inflation rate, their economies wouldn't have suffered such increased unemployment rate.

 

  • Inflation brings about a corresponding change in the wages and salaries of workers

A moderate rate of inflation can have a positive effect on the wages and salaries of workers who are deserving. Interestingly, one of the reasons why salaries and wages are increased is due to an increase in the standard of living; and that's influenced by inflation.

As an instance, a person who had worked for over 10 years in an organization will likely not continue to earn the same amount as salary (even when he or she isn't promoted). This is true because the standard of living between the present time and '10 years ago' must have changed.

You can read on conflict management and ways to reduce conflict in any organization here.

Again, this change will be in the upwards direction if inflation had occur in the economy. For this reason, productive and dedicated workers will earn a pay rise while the unproductive ones may have their wages frozen with new workers occupying their position.

Note: The above process makes an organization attractive, thus indirectly creating more employment opportunities.

You can read on the advantages of division of labour here.

 

  • Inflation results into price adjustment

This is particularly important for countries that utilizes the same currency, for instance, the Euros which happens to be a currency used in the 'Euro-zone' countries.

At one point in time, the southern Euro-zone countries (Spain and Italy) had an uncompetitive economy which lead to account deficits for the citizens and residents alike. To worsen the situation, both countries utilize the Euros (a general currency for the Euro-zone countries) which can't be single-handedly devaluated.

In summary both countries had to cut the relative prices of goods and services in an attempt to regain competitiveness.

You can read on the advantages and disadvantages of cheques here.

Note: The process of cutting down relative prices implied that wages and salaries are reduced as a result of deflation. Had it been the Euro-zone had a low to moderate Inflation rate, it would have been much easier for Spain and Italy (from the above instance) to regain economic competitiveness without undergoing the dangerous processes of deflation.

You can read on supply curve and law of supply here.

 

  • Inflation reduces the value of debt

Generally, when people take up debts; for instance, a mortgage, they usually envisage that an impending inflation rate will aid them cancel out the value of such debt overtime.

In a scenerio where inflation fails to occur (rather deflation took its place), such events can become catastrophic for those who had taken up the debt as some may even contemplate suicide as a result.

Please read on the concept and types of cost here.

Note: An instance of the above explanation occured in United Kingdom in 1920s and 'Euro-zones' in 2010s and these led to serious problems in the affected economies.

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Alfred Ajibola is a Medical Biochemist, a passionate Academician with over 7 years of experience, a Versatile Writer, a Web Developer, a Cisco Certified Network Associate and a Cisco CyberOps Associate.


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Amazing facts in Economics


NOTABLE POINTS IN Economics

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

Consider the table below:

Needs / Wants

Cost (Naira)

 Phone

 50,000

 Console Game

 120,000

 Laptop

 80,000

 Ipad

 100,000

 Smart watch

 85,000

 Ipod

 40,000

The above table shows us what a scale of preference would look like.

A scale of preference can be defined as the list of a person's needs or wants written in an order of importance.

You will observe that the person puts his most important needs or wants at the top of the list. Further down the list are his less important needs.

Now, let's imagine that this individual has 170,000 Naira to spend. According to the above scale of preference, the followings can be deduced;

  • A phone will be considered to be the most important; and it costs 50,000. He buys the phone.

  • A console game according to this person is next in importance; and it costs 120,000. He buys the console game.

Another question worth asking is:

  • What happens to his other needs?

This is where the term 'Opportinity Cost comes into play.

Please read more on scale of preference and opportunity cost here.

Scale of Preference can be defined as the list of a person's needs or wants written in an order of importance. 📜✍️

When you have a limited amount of money and could only buy some of the items on your list (the top items on the list); then the remaining items that you didn't buy will be generally considered as your opportunity cost.

Opportunity cost can be defined as the value of the best alternative that a person could have achieved or bought but couldn't achieve after the best choice had been achieved.

Opportunity cost are of two types. They are:

  1. Explicit Opportunity Cost
  2. Implicit Opportunity Cost

Please read on scale of Preference, Opportunity cost and the types of Opportunity cost here

Economics isn't just about money. It isn't just about economizing or efficiency or prudence at management.

In simple terms, Economics is a science that deals with the study of scarcity and choice.

Economics have 2 main branches. They are:

  • Microeconomics
  • Macroeconomics