Discuss whether or not inflation will harm a country's firms.
In assessing each answer, use the table opposite.
Why it might:
- may increase price of raw materials and capital goods
- increase costs of production
- increase menu and shoe leather costs
- workers may take industrial action to gain wage rises
- increase costs and disrupt output
- cost-push inflation
- less internationally competitive
- profits may fall
- may make it difficult to plan.
Why it might not:
- demand-pull inflation can increase sales
- revenue may rise by more than costs, increase profits
- if lower than rival countries can make products more internationally competitive
- if low and stable, may not be a problem
- may reduce real value of debts
- may be able to reduce real costs of wages.
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