Answer to Question #142233 in Macroeconomics for Abdallah

Question

When inflation rises

Answer 1

Inflation is a rise in the levels of prices in an economy for a certain period of time.

To a consumer ,increased inflation will rise the demand for goods.Consumers will purchase goods more quickly before prices rises further. It will also rise the shortage of hoarded goods.

To a business firm ,increased inflation will rise the cost of raw materials,wages to pay workers.

Due to uncertainty about the future costs and increased costs of borrowing, little investments will be made

For the central bank ,Increased inflation will increase interest rates.Borrowing costs will increase,slowing down the investment rate and the economic growth.

Savers without indexed linked savings will experience a reduction in the real value of their savings.

Savers with index linked savings will be able to protect their real savings.

For workers, the Increased cost of living may lead to increased wages