Answer to Question #150647 in Macroeconomics for Tamia

Question

it economically advisable to hold money for transaction and precautionary motive in times of high inflation? Explain. [10]
Explain why population growth can be regarded as mixed blessing as far as economic growth is concerned. [05]
Explain why a net borrower might become a net lender in future, but a net lender will never become a net borrower following an increase in inflation rate.

Answer 1

1. During times of high inflation, it is advisable to keep money in hard currency, the rate of which is economically justified and backed by appropriate reserves.
2. Population growth leads to an imbalance in the structure of labor resources, which was formed for a specific economy, therefore, the economy must be reoriented, which is not happening as fast as the pace of economic growth requires. Consequently, this can lead to a decrease in the level of economic well-being.
3. An increase in the inflation rate leads to the fact that the borrowed interest is often equal to or below the inflation rate, which reduces the profitability of transactions on the transfer of borrowed funds for use.