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About zenybear
- Birthday 01/27/1989
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economics<br />political economy<br />liberal arts and humanities
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Philippines
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hello. inflation means a rise in the general level of prices in an economy. in this case, we can say that the money supply in the economy increases without increasing its real value. inflation is comparable to exchange rate. if the previous exchange rate is 40 pesos to one dollar and the exchange today is 43 pesos to a dollar, many will say that the value of the dollar appreciated with that of the peso depreciated. However, the real exchange rate might not change if the nominal exchange rate increases. why does inflation become an avenger to some/many? let us consider the assumption that the participants in the economy are not rational(in economic context), meaning they might not have perfect information and they cannot fully utilize the information available. if the inflation is unexpected, the participants in the economy cannot adjust their expectations. given that the inflation is unexpected, a firm might interpret that the price of their good increase making the firm increase it s production, without realizing that most of their input's prices also increased. also, it is given that there can be two type of firms. one that can easily lay-off its workers and one that cannot. if the firms(those who cannot lay-off) realized that their input increased, they cannot lay-off their workers. also, there are unions in the labor market. whatever the inflation in the economy(can also be deflation), they neither can lay-off their workers nor decrease their wages. since they cannot do these things, they cannot fully minimize their cost. there are also other answers in your inquiry, ill add them later.