Question

Why are inflationary dangers lower in the high-income economies than in low-income and middle-income economies?

Short answer

Inflationary risks are low in high-income nations since politicians in those countries are aware of the risks involved and motivated to combat them.

However, policymakers in poor and middle income nations are ill-equipped.

Step-by-step solution

Step 1. Define inflation.

Inflation is the gradual loss of a currency's buying value over time.

Step 2. Why are the risks of inflation in high-income economies lower than in low- and middle-income nations?

Inflationary risks are low in high-income nations since politicians in those countries are aware of the risks involved and motivated to combat them. They also have the necessary monetary and fiscal policies in place to do this.

However, policymakers in poor and middle income nations are ill-equipped. In most cases, the problem of inflation is created by a budget imbalance, which can be caused by inadequate administration of monies obtained from taxes, foreign aid, or political entrenched interests.