How inflation affects function of money essay

Inflation is the general increase in the price level over a period of time. Money is something that is generally acceptable in the exchange of goods and services.

How inflation affects function of money essay

When the general price level rises, each unit of currency buys fewer goods and services, and consequently, results in, a reduction in the purchasing power per unit of money. There are different factors that cause inflation and therefore there are different types of inflation.

Firstly, there is demand-pull inflation; this is basically when the total aggregate demand in an economy goes up, resulting in a rise in the general price level.

Inflation Affect on the Function of Money Free Essay Example | caninariojana.com

Secondly, there is cost-push inflation, this type of inflation is caused by an increase in the cost of production, in this case, the producers try and push these costs on to consumers, which eventually leads to an increase in price of most goods.

Money is basically any commodity that is generally accepted in the exchange of goods and services, and when any of the above types of inflation occurs, money begins to lose some of its functions, and I shall be discussing how this happens in my following essay.

One of the first, and most important functions of money is that it is used as a medium of exchange. Now, when there are high rates of unanticipated inflation, money loses its value and therefore cannot function as a medium of exchange as people lose confidence in money.

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It also loses its function of being a store of value, because people would prefer to hold land, and assets rather than money as the value of money depreciates during inflation, but the value of land, or any other asset is less likely to depreciate.

Not in monetary form. Lastly, money can also be used as a standard for deferred payments, but when there are high levels of inflation, money loses this value too as individuals will not be willing to lend or sell anything on credit basis.

For instance, if I sell something today on credit basis whiles there is a high rate of unanticipated inflation, by the time I get my money back, the value might have drastically gone down.

This obviously discourages people from lending or selling on a credit basis. To conclude, I believe high rates of inflation affects the functions of money in every possible way, because inflation means a decrease in the purchasing power of money, and that leads to money losing its functions mainly as a store of value, and all the other functions such as, means of exchange, standard of deferred payment, and unit of account.

There must always be low inflation in order for money to keep performing its functions properly!!Explain how inflation affects the functions of money. Inflation is the general increase in the price level over a period of time. Money is something that is generally acceptable in .

As inflation is a state of rising prices, deflation may be defined as a state of falling prices but not fall in prices.

How inflation affects function of money essay

Deflation is, thus, the opposite of inflation, i.e., rise in the value or purchasing power of money. Inflation however affects many thing one being function of money such as medium of exchange, store of value, unit of account and standard of deferred payments.

How Does Inflation Affect the Function of Money - New York Essays

Medium of exchange means that any item that is widely acceptable in exchange of goods and services. Inflation however affects many thing one being function of money such as medium of exchange, store of value, unit of account and standard of deferred payments.

How inflation affects function of money essay

Medium of exchange means that any item that is widely acceptable in exchange of goods and services. Because inflation affects everything.

Inflation Begins With Money Losing Value.

How Inflation Affects Function of Money Essay Inflation is defined as a persistent increase in general price level. Inflation is measured by the proportional changes over time in some appropriate price index, commonly a consumer price index. Inflation however affects many thing one being function of money such as medium of exchange, store of value, unit of account and standard of deferred payments. Medium of exchange means that any item that is widely acceptable in exchange of goods and services. Inflation and the Function of Money Readers Qu. EXPLAIN HOW INFLATION AFFECTS THE FUNCTIONS OF MONEY Money is said to have four functions 1. Medium of Exchange - used for buying and selling goods. 2. Store of Value: We value goods and wealth through money. Money makes it .

To understand the effects of inflation, consider the following example of the purchasing power of $ in , compared to today. Inflation Transfers Money From Savers and Investors to Debtors. Explain how inflation affects the functions of money. Inflation is the general increase in the price level over a period of time.

Money is something that is generally acceptable in .

Economics Essays: Inflation and the Function of Money