Please identify whether the following descriptions are associated with inflation

Question

Please identify whether the following descriptions are associated with inflation, deflation, or both inflation and deflation A. Both inflation and deflation B. Inflation C. Deflation D. Deflation E. Both inflation and deflation F. Inflation G. Deflation It hurts people on fixed incomes It helps people on fixed incomes - It increases uncertainty It leads people to cut back on spending It creates menu costs, because firms have to spend resources updating - their prices It wipes out savings It makes savings more valuable

Explanation / Answer

A. Inflation

Explanation: Inflation results in higher price so people with fixed income face income loss.

B. Deflation

Explanation: Deflation results in falling prices so people with fixed income face growth in income.

C. Both inflation and deflation

Explanation: Both results in economic instability which creates uncertainty

D. Inflation

Explanation: Inflation results in loss of real income so people cut back expenses

E.Both inflation and deflation

Explanation: Both inflation and deflation result in price changes

F. Inflation

Explanation: Inflation results in higher price level which erodes saving as the value of savings come down

G. Deflation

Explanation: Deflation results in lower price level which increases the value of saving as the value of savings increases

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