Answer to Question #171259 in Macroeconomics for Zannat Sharma

Question

How inflation affect:-

1. Consumer
2. Borrowers
3. Employment
4. Economic Growth

Answer 1

1) Inflation erodes purchasing power or how much of something can be purchased with currency. Because inflation erodes the value of cash, it encourages consumers to spend and stock up on items that are slower to lose value. It lowers the cost of borrowing and reduces unemployment.

2) Price inflation greatly affects time value of money inflation lenders or depositors who pay a fixed rate of interest on loans or deposits will lose purchasing power from their interest earnings while their borrowers benefit.

3) Over the long run, inflation does not affect the employment rate because the economy compensates for current and expected inflation by increasing worker compensation, causing the unemployment rate to move to the natural rate.

4) When prices for energy, food, commodities, and other goods and services rise, the entire economy is affected. Rising prices, known as inflation, impact the cost of living, the cost of doing business, borrowing money, mortgages, corporate, and government bond yields, and every other facet of the economy.