Previous Year Questions

1. There are better Investment Returns since investors and entrepreneurs receive incentives for investing in productive activities.

2. High inflation rates tend to cause uncertainty and confusion leading to less investment. It is argued that countries with persistently higher inflation, tend to have lower rates of investment and economic growth.

3. Higher inflation leads to lower international competitiveness, leading to fewer exports and a deterioration in the current account balance of payments. In a fixed exchange rate, e.g. the Euro - this is even more problematic as countries do not have the option of devaluation.

4. Inflation and stagnant wage growth lead to declining incomes.

5. Inflation can reduce the real value of savings, which might particularly affect old people who live on savings. However, it does depend on whether interest rates are higher than the inflation rate.