Explain five negative effects of inflation in third world countries.
Answer Text: -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 importsthan 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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