Effects of Inflation

Question 1

What happens to price and inequality when there is high inflation

Answer 1

the price of GaS rises meaning only rich can afford thus leading to greater inequality

Question 2

what happens to real income when there is high inflation

Answer 2

incomes have less purchasing power when adjusted for inflation leading to lower standard

Question 3

what do banks do to promote savings and prevent more money in circulation

Answer 3

increase interest rates

Question 4

what happens to real interest rates

Answer 4

they fall and decrease the value of existing debt

Question 5

what is a wage spiral

Answer 5

effect of inflation where a new real wage demand is met then inflation rises again and cycle continues

Question 6

what happens to a business’ competitiveness

Answer 6

some may increase because more effeciency but some reduce because they will lose consumers

Question 7

what happens to business’ certainty

Answer 7

become very uncertain and reluctant to invest leading to decrease in long term productivity