Question

How more production of consumer goods leads to less production of capital goods?

Answer 1

Opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings, and if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future. Positive effects include reducing unemployment due to nominal wage rigidity, allowing the central bank more leeway in carrying out monetary policy, encouraging loans and investment instead of money hoarding, and avoiding the inefficiencies associated with deflation.

Answer 2

Answer:

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• ➫ Capital goods are goods used by one business to help another business produce consumer goods.
• ➫ Consumer goods are used by consumers and have no future productive use.
• ➫ Capital goods include items like buildings, machinery, and tools.
• ➫ Examples of consumer goods include food, appliances, clothing, and automobiles.