Question

Apply 2 concepts of inflation to a news article.

Answer 1

Explanation:

Inflation is an important concept for small business because it affects interest rates, which impacts how much it costs to borrow money. At the heart of the relationship between inflation and interest rates are real and nominal interest rates. Nominal interest rates are the interest rates advertised by your bank. They are, for example, the interest accrued on your savings in your savings account. The real interest rate is the nominal interest rate adjusted for inflation.

In an economic scenario where there is 3% inflation and you have a variable rate interest loan at 10% interest that's adjusted for inflation, the real interest rate you will pay is 13%. In other words, inflation can end up costing you more money.