What is Inflation rate? ***I have to write a report for finance class, would like some...

What is Inflation rate? ***I have to write a report for finance class, would like some ideas to help me out please.

Expert Solution

ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

Inflation is a general increase in the price of goods and services in the economy over a period of time.

1. When the inflation rate is high then overall prices increase with a high rate.

2. It means it will reduce the purchasing power for the same amount of money.

3. So the previously taken financing becomes cheap during high inflation and vice versa.

(But the new financing becomes costlier in nominal terms

Nominal rate = Real rate+ Inflation).

If the inflation rate is high, interest rate high.

Inflation rate low, interest rate low.

When inflation is high it can be controlled by reducing/tightening the money supply in the economy. By increasing the interest rates the money supply can be brought into control because when the interest rates are high the borrowing will it reduce.

The downside of it is that it will slow down the economy. Due to higher borrowing cost, there is less business spending and it creates unemployment.

jeff jeffy answered 1 year ago

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