Article Review: Money and Inflation - Essay Example

Most likely firms invest in new technology to increase the productivity of their employees and that of their customers. To ensure that the investment goes through the given firm has to consider the potential return on the investment. This is the measure of performance and the effectiveness of an investment. However money is also know as a store for value, it holds its value over time it is also a second unit of account that’s why prices are often quoted in terms of money. Money is the only form that is accepted in every part of the word as a form of payment making it a medium of exchange in all parts of the world.

Even though one has money for either purchasing goods or services money has limits to serve its given functions. Higher and increasing rates of inflation make money less useful in many given ways. When the rate of inflation is high, the longer the money stays in cash the more value it loses. Hence making most of the people spend it quickly rather than holding it for longer time. When such situations emerge money does not as an effective store of value. However if high rates of inflation the rate of transactions in the given region increases rapidly.

On the other hand if the rate of inflation goes higher the usefulness of money as a unit of account weakens. If in any case the communication that is between buyers and sellers become complicated due to the rapid change in the items. The comparing prices become complex due to the high rise in all the items that are in the market. The most affecting issue that inflation causes is the reduction of the value of money as a medium of exchange in such case the people involved abandoned the use of their currency and they go forward looking for other currencies instead.

Such case is referred to as hyperinflation such cases have happened in well known countries like in Zimbabwe. The rate of inflation went high in this country such that the countries citizens had to leave their own currency in search of another. They however preferred the use of the American dollar later changing it to the South African rands. Like for the case of changing the Zimbabwe dollar one can buy a $100 trillion Zimbabwean dollar at 5 us dollars. In most cases inflation rate should not go beyond 2 percent.

If the inflation rate is 2 percent the economy of the country is stable. When the rate of inflation is at that percentage, it slightly reduces the function of money and its value. But if in any case it goes beyond that given percentage the country is in a critical condition and it money about to lose value. However any inflation rate that is beyond zero makes the country to maintain an inflation barrier. The inflation buffer reduces the chances of deflation should in any case the economy of the given country start to weaken.

When the inflation rate is stable the economic growth and employment are enhanced making the country more succesiful and the value of their currency to increase by time. However money facilitates transactions in ways that keep the economy of any given country running and also functioning as required. But the only time that the economy of any given country can run smoothly is when the inflation rate is high as volatile. Despite the fact that most countries in the world are working hard to eradicate the rate of inflation in their countries, stable and low rates of inflation helps the countries