Inflation: Incentives for Consumers and Producers

Incentives Created by Inflation

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Question

What incentives does inflation create in consumers and producers?

Answers

A. Consumers will save less and producers will invest more.

B. Consumers will spend more and producers will produce more.

C. Consumers will save more and producers will produce more.

D. Consumers will spend more and producers will sell off inventories.

E. Consumers will spend less and producers will lay off workers.

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Explanations

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A. B. C. D. E.

Inflation causes consumers to spend now, because goods will be more expensive in the future.

Conversely, producers will produce goods now, because wages and raw materials prices are expected to rise. Producers will also build up inventories in anticipation of higher future prices.

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