Effect Of Inflation, Pro and Cons Of Inflation

This graph above manoeuver the ostentatiousness rate 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 tough and can act as either a positive or a negative influence. Local and international researchers have conducted studies on the descent of Malaysias inflation rate and economic growth. It can be cerebrate that over the past decades, there has been a general non-linear relationship amidst inflation rate and economic growth in Malaysia.However, in the immense 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 pomposity Inflation may have a positive effect in Malaysian delivery. This is because deflation is very harmful, inflation enables enrolment of prices and proceeds and boost 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 be f totallying people are reluctant to spend money because they are concerned that prices will be cheaper in the future, therefore, they keep delaying purchases. Second advantage is moderate inflation enables adjustment of prices and wages. It is argued a moderate rate of inflation makes it easier to adjust relative wages and prices. For example, it may be difficult to cut nominal wages (workers dislike wage cut). But, if average prices are rising, it is easier to increase good workers wages more than 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 higher(prenominal) rate of inflation can enable a boost to growth. This view is controversial. Not all economists would sup port targeting a higher 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 discourage