Anonymous asked in Business & FinanceOther - Business & Finance · 9 years ago

what are the benefits and disadvantages of inflation?


1 Answer

  • 9 years ago
    Favorite Answer

    There are a number, but the simplest ones are: benefit - rise in the rates of fixed income instruments if you keep them to maturity. So today maybe you get 2% on a bank CD. With inflation, you might get 6%. Disadvantage - if you own fixed income securities, inflation will cause their underlying value to depreciate since fewer people would be interested in buying your lower rate instrument. Disadvantage: when coupled with a stagnant economy, people's pay checks shrink in purchasing power. Witness gas prices today. People on fixed incomes have less money at the end of the month. Advantage: the value of any debt that you have goes down in real dollars. There are a number of pros and cons, but I think most people would agree that the best situation is the opposite of stagflation, a growing economy and low inflation.

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