Asked by michelle hopkins on Jul 26, 2024
Verified
Explain how inflation affects savings.
Inflation
is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
Savings
Savings refer to the portion of income that is not spent on consumption but is set aside for future use, often in a bank account or other investment vehicle.
- Explain how inflation affects savings, interest rates, and economic decisions.
Verified Answer
AC
Allie CardwellJul 26, 2024
Final Answer :
Inflation discourages savings. Income tax is collected on nominal rather than real interest rates. So an increase in inflation will increase nominal interest rates and taxes, the increase in taxes in turn lowers the real return on savings and so discourages savings.
Learning Objectives
- Explain how inflation affects savings, interest rates, and economic decisions.