Mild inflation?

Question

why is mild inflation considered to be an essential incentive to invest accumulated wealth? how it have a positive effect on the economy?

Can i say that if there is inflation, people will invest in companies (to invest in capital and labour) and thus earn more becos of price increase?

Answer 1

The primary benefit to mild inflation is that it encourages consumption. Because you know that the price of something will increase down the road, you're more likely to purchase it today.

Contrast this with deflationary periods, which correlate to a sharp drop-off in consumer spending. See: The Great Depression.

A small amount of inflation also encourages borrowing (and thus, investment) because the debt costs you less when you actually have to pay it back than when you were originally issued the debt.

Some of the positive benefits of inflation are psychological.

For example, assume an economy with 0% inflation, and one with 3% inflation.

In the first economy, assume your employer gives you a raise of 1%, and in the 2nd, you get a raise of 4%?

Which one makes you happier? However, in reality they are no different.

Answer 2

Yes I believe that, altho I think it's not so mild, It is worst than mild,
Don't you see the amount of new houses that built and have for sale sign on then for months & months going on, & on, on So that's not a mild Inflation that is Inflation in your face. Altho it's a good time to shop for house or houses because it is buyers market, you can call the price shot now the seler if he or she realy want to sell the house they can't ask those reduclus figures for that building so the the time to go shopping for house. Even Mortgage! it even more easy to get these daye so think positive and go out and turn the bad into good it can be done just think &. put your thinking into practis..>>>.

Answer 3

I don't think it's harmful, but I don't think it's essential either. Investors are going to invest to get a return anyway, you don't need inflation as an incentive. Rich people don't just seek returns that equal inflation, they seek real returns.

Maybe has a positive effect on consumption, as it discourages people from delaying purchases, and it serves as a signal to producers to produce MORE.

Answer 4

Mild inflation, or what the textbooks refer to as creeping inflation.. spurs businesses and consumers to buy more now instead of trying to save up for something.

Anything less than 3% a year I believe is classic creeping inflation.

If money were ever to be worth more in the future.. businesses and consumers would save instead of spending or borrowing. This would lead to economic depression. 73% of the US economic activities are based on consumers spending and borrowing.

Did this analysis help any?

Answer 5

If there is no inflation people who already have money have no incentive to take risk and be productive. Inflation makes them realize that if they don't invest they will end up poor.