Inflation at an acceptable low stable rate is good because it increases economic output and productivity while generating employment opportunities. Inflation at extremely high levels, also known as runaway inflation, is bad because essential goods and services become too expensive and unemployment increases, which destabilizes the economy.Why does inflation increase with GDP growth?
Inflation generally increases when the gross domestic product (GDP) growth rate is above 2.5 percent due to several factors, such as demand for goods overstretching supply and higher wages in an ultra-competitive job market, according to Investopedia.What are the effects of inflation on the economy?
Inflation is an increase in prices, which affects the economy by reducing the purchase power of consumers, causing companies to earn less revenue. Inflation also increases the rate of unemployment.What are the factors of inflation?
A wide range of factors causes inflation. The most common causes are: An increase in the demand for goods due to shortage, which leads to prices going up (known as demand inflation). Certain conditions, like increases in production charges, causes prices charged on goods to increase (known as push inflation).