please briefly explain why we care about inflation

Expert Solution

Inflation referred as a measurement of annual rate of increase in the average level of prices. Whether inflation is good thing or bad thing, it depends very much on one’s economic situation at that particular time. For borrower, unexpected inflation is a good thing because it reduces the value of money that you must repay. For lender, inflation is a bad thing as it reduces the value of future payments that lender will receive. It can also create uncertainty about the future. When people anticipate or forecast inflation, they can adjust or well-prepared for its consequences in determining future obligations. But, if people not anticipate it then, it will help borrowers and hurt lenders.

When the value of the money changes, price changes can be difficult to interpret, and thus lead to an inefficient allocation of resources. That’s why we have to care about inflation and prepare for it in advance.

Rahul Sunny answered 1 year ago

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