Why is unexpected inflation a societal problem?
Unexpected inflation is a problem to society because it causes people to lose their confidence in the dollar, which is the driving force behind its use. The only reason money "works" is because I believe that it will allow me to buy something I want, and you believe that too. If nobody is confident in the dollar, then they will do their best to get rid of their money, thus slowing down the economy. Furthermore, unexpected inflation may reduce the real income of a household. This makes it so that households can't spend as much as they thought they would be able to of their hard earned money. Both a lower income and less expenditure lead to slow GDP, the growth of an economy.
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ReplyDeleteUnexpected inflation causes lenders not to lend because they don't know how to make profitable interest rates. Moreover, there is a problem involving gain taxes. If I made 5% last year, but there was a 5% inflation rate, then I didn't make any money. However, I am still taxed as if I made 5%, so I'm actually losing money.
ReplyDeleteYour second post has a little more accuracy but still somewhat incomplete.
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