Question

The annual rate of inflation in an economy increased sharply and unexpectedly(a) Explain the likely consequences of such an increase for consumers and firms. The answer guide have been given for your help. Please write at least 16 sentence for this answer​

Answer 1

Effects of Inflation on consumers and firms-

• The expense of living has risen.
• Purchase power is reduced.
• The cost of borrowing has risen.
• Investments and savings are discouraged.
• Laborers put pressure on the authorities to raise pay.
• Increases in the cost of commodities, which make the lives of wage earners considerably more difficult.
• Reduces the expansion of employment.
• The value of savings is diminished.  
• Uncertainty is generated.
• Economic activity is disrupted.
• Long-term economic planning seems difficult.
• Cost of handling business rises.
• Creditors suffer greatly.
• Fear of future inflation.
• Increased stockpiling of commodities due to fear of future price hikes.
• Debtors are benefited.
• Markets are experiencing a supply shortage.

INFLATION- It is the rate at which the price of goods and services rises over a given period.