ECONOMICS
INFLATION
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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inflation encourages consumers to buy goods made in Australia rather than imports
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It increases the rate of savings
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It means a recession is around the corner
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It leads to uncertainty and makes investment more ri
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Detailed explanation-1: -When prices of goods and services are on average rising, inflation is positive. Note that this does not mean that all prices are rising, or that they are all rising at the same rate. In fact, if enough prices fall, the average may fall too, resulting in negative inflation, which is also known as deflation.
Detailed explanation-2: -They argue that when the inflation rate increases, the monetary authorities do not have a clear response, and this generates uncertainty about the future rate of inflation for the public, since the money supply growth cannot be predicted.
Detailed explanation-3: -Increased uncertainty makes firms delay their spending and investment plans. The real-options effects exert a negative impact of uncertainty on prices since, in the long-term, firms cut production due to weak demand, causing downward pressure on inflation (Bloom 2014).
Detailed explanation-4: -Elevated inflation discourages saving, since it erodes the purchasing power of the savings over time. That prospect can encourage consumers to spend and businesses to invest. As a result, unemployment often declines at first as inflation climbs.