Explain one harm associated with unexpected inflation that is not associated with expected inflation. Then explain one harm associated with both expected and unexpected inflation.
2006-11-02 15:00:18 · 1 answers · asked by Soccer Stud 2 in Social Science ➔ Economics
Unexpected inflation creates uncertainty and raises the risk of investing. In contrast, unexpected inflation can be taken into account when making decisions about whether to invest or not. Therefore, unexpected inflation reduces investment and therefore can harm future economic growth.
All inflation (expected and unexpected) causes wealth to be redistributed. If you have a $100 note and prices double, then you are worse off since you will only be able to buy $50 worth of goods with it. Conversely, if you have borrowed $100 and prices double, then you will only have to forego $50 worth of consumption to repay the loan (although, at least if it is expected, the lender will probably ask for a higher interest rate to offset the loss in purchasing power that they would otherwise experience).
2006-11-02 17:20:21 · answer #1 · answered by eco101 3 · 0⤊ 0⤋