What are the pros and cons of inflation?
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Pros:
– Makes debt less expensive to service. Debt stays the same, so if your wages go up then the debt is a smaller portion of your income.
– Encourages spending, which is good for the economy. If things get more expensive over time, then you are encouraged to spend today
– Punishes uninvested money. You need to put your money out there to earn something so it doesn’t lose value. This allows that money to be invested.
– Protects against deflation. Deflation is really, really bad – so bad we need to protect against it at all costs.
Cons:
– Punishes people whose wages don’t increase. This one is obvious – goods get more expensive.
– Makes debt less valuable. If you own debt, then what you own is less valuable over time.
– Hurts “stagnant” money, like checking and savings accounts.
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