What is the impact of the inflation rate on the GDP growth rate?

Question:

What is the impact of the inflation rate on the GDP growth rate?

GDP Growth rate

Gross domestic product is the value of final goods and services produced in an economy in given period. The GDP growth rate is a rate which shows the growth in gross domestic product of a country. There are different factors which affect the GDP growth of a country, inflation is one of those.

Answer and Explanation:

Inflation rate between (1-3%) increase the GDP growth, as in this situation people will expect more increase in the future prices, therefore, they will increase the present consumption and production, which eventually increases the gross domestic product. As when inflation rate increase beyond 3%, the increase in general price of goods and services reduces the value of money. The consumers will demand less due to decreased purchasing power and producers will produce less due to high cost of factors of production. This will reduce the Gross Domestic Product (GDP) growth rate.


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Overview of the Gross Domestic Product

from CLEP Social Sciences and History: Study Guide & Test Prep

Chapter 59 / Lesson 2
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