Explain five negative effects of inflation in third world countries.

Answer:

-Reduction of profits:rise in prices of commodities may lead to reduced sales volume for firms resulting to decrease in profits of the firm.
-Leads to deficit in the balance of payment because people buy many of imports
than the country is exporting
-Discourages savings-During inflation people tend to spend more due to increase in prices as the struggle to maintain value thus discourages savings
-Leads to low investment and unemployment
-Weakens the local currency and this may scare away investors

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