Question

Q22. The problems of high inflation is/are

1. It reduces the purchasing power of the people

2. It increases the savings in a country

3. Interest rates go up

4. Investments increases

Choose the correct answer:

• A. a) All of the above
• B. b) 1 and 3 only
• C. c) 2 and 4 only
• D. d) 1, 3 and 4 only

Answer 1

The correct option is B

b) 1 and 3 only

Inflation means a persistent and widespread growth in the prices of goods and services. When the prices of goods and services increase it reduces the purchasing power of the people. Due to the increased expenditure people will save less and hence savings decrease. Due to low savings, the overall deposits in the banks reduce and this puts pressure on available financial resources. This leads to increase in the interest rates. Due to higher interest rates and low demand investments also go down