Answer to Question #135080 in Macroeconomics for December

Question

Which one of the following is NOT an effect of higher inflation?
[1] Redistribution of wealth from the lender to the borrower.
[2] A decrease of the real value of existing savings.
[3] An increase in the standard of living.
[4] An increase in the cost of living.

Answer 1

Solution:

The answer is: 3. An increase in the standard of living

This is because higher inflation leads to a decrease in the standard of living. Inflation occurs when there is a general increase in prices of goods and services and as a result, leads to unemployment and a substantial and continuing drop in purchasing power in an economy over some time. As such, the standards of living will decrease due to the high costs affecting peoples lifestyle.