Answer to Question #93836 in Macroeconomics for Suleiman

Question

Why effects of inflation leads to inflationary recession

Answer 1

In an inflationary environment, people tend to cut out leisure spending, reduce overall spending and begin to save more. As individuals and businesses curtail expenditures in an effort to trim costs, GDP declines and unemployment rates rise because companies lay off workers to reduce costs. It is these combined factors that cause the economy to fall into a recession.