top of page

Advantages of a Low Inflation Environment

Question

Analyse the advantages of a low rate of inflation.

Category:

Inflation and Deflation

Frequently asked question

Preview Answer

I. 🍃Introduction
- Definition of low inflation
- Importance of low inflation in the economy

II. Effects of low inflation
A. Purchasing power
- Explanation of how low inflation may stop purchasing power from being reduced too much
- Explanation of how wages may keep pace with inflation

B. International price competitiveness
- Explanation of how low inflation may increase international price competitiveness
- Explanation of how this may lead to increased exports, reduced imports, and improved current account position

C. Certainty and stability
- Explanation of how low inflation may create greater certainty and stability
- Explanation of how this may encourage firms and MNCs to invest, increasing output, GDP, and employment while lowering unemployment

D. Encouraging saving
- Explanation of how low inflation may encourage saving
- Explanation of how this may provide funds for investment

E. Profit and expansion
- Explanation of how low inflation may raise profit if demand-pull
- Explanation of how this may encourage firms to expand, increasing employment and lowering unemployment

F. Redistribution of income
- Explanation of how low inflation may stop a random redistribution of income
- Explanation of how this may protect savers

G. Low menu costs
- Explanation of how low inflation may reduce pressure on firms' costs of production

III. 👉Conclusion
- Recap of the effects of low inflation
- Importance of maintaining low inflation in the economy.

Ops... End of preview!

Already purchased Economics Study Pack subscription? Amazing! Click below

What's included 
 
✔️Full essay
✔️Tips
✔️Diagrams
✔️Marking Schemes
✔️Examiner's report

Economics Study Help
bottom of page