What are the costs associated with inflation? What will be an ideal r

What are the costs associated with inflation?

What will be an ideal response?

ANSWER

Inflation can redistribute income between those who can raise their prices and wages and those who are unable to do so. Individuals on fixed incomes from pensions or investments will be worse off if these sources of income do not increase with the inflation rate. Borrowers gain and lenders lose with inflation because the payments on loans such as home mortgages, may not increase with inflation. Inflation results in uncertainty about what the real purchasing power of money will be in the future. Inflation also creates difficulties in contracts for future payments, and high inflation may undermine the faith in governments and economic systems entirely.