Business entrepreneurship....? -

Why is a high rate of inflation generally considered harmful to an economy?

Lets define inflation in simple terms; inflation is : when you have LOTS of money that is following fewer goods. and that will mean the goods are overpriced .another cause , Inflation Decreases the Purchasing power of money.Example ; 5 years ago i used to buy a 1 litre bottle of water for 1 us $ . assuming inflation happened, My 1 US $ today cannot buy me a .5 litre bottle of water.when there are high rates of inflation , Real interest rates decrease according to the following formula:Nominal Inerest rate = Real Interest rate + Inflation rateNominal interest rate : is the rates that are inflation adjusted Real interest : the actual yield (return)when inflation increases real interest decreases in order to maintain the nominal interest rateExample , Let us assume I am a bank (Lender) , i am lending at 7% ; my yield is 7% this also means real interest is 7%.you borrowed from me at a cost of 7%there is no inflation here, so according to the formulaNominal IR(7)= Real Interest (7) + inflation (0)lets say there is 3% inflation observe what happens to my yeild (real interest rate)Nominal Rate = Real Interest rate + inflation7% = 4% + 3%right now i the bank am losing 3%