Which among the following statements with respect to Inflation is / are true?
1. Inflation redistributes wealth from creditors to debtors
2. Rising inflation indicates rising aggregate demand
3. Inflation increases employment in the short run
4. Investment in the economy is boosted by the inflation in the short run
Which among the above is / are correct statements?
The first statement is correct that Inflation redistributes wealth from creditors to debtors. This implies that the lenders suffer and borrowers benefit out of inflation. The opposite effect takes place during disinflation. Second statement is also correct as rising inflation indicates rising aggregate demand and indicates comparatively lower supply and higher purchasing capacity among the consumers. Third statement is also correct as investment in the economy is boosted by the inflation (in the short-run) because higher inflation indicates higher demand and suggests enterpreneurs to expand their production level. Further, higher the inflation, lower the cost of loan. Last statement is also correct as Inflation increases employment in the shortrun but becomes neutral or even negative in the long run. This can be explained by Phillips Curve.
This question is a part of GKToday's Integrated IAS General Studies Module