Lesson 9 - The costs of inflation

Question 1

Give a reason why high inflation is a problem?

Answer 1

Falling incomes, workers will be worse off if wage increases lag behind inflation

Question 2

Give another reason why high inflation is a problem?

Answer 2

Cost of borrowing, high inflation may also lead to higher interest rates for businesses and consumers with debts.

Question 3

Give another reason why high inflation is a problem?

Answer 3

Business competitiveness - businesses will become less competitive as their costs will rise due to inflation causing them to have to raise prices