Inflation can have a big impact on how our economy grows and develops. Here’s a simple breakdown of its effects:
Cost of Living: When inflation goes up by just 1%, it can make everyday things more expensive. This means people can buy less with their money. Since consumer spending makes up about 70% of our country's economic activity, this change really matters.
Interest Rates: To fight inflation, banks might raise interest rates. For instance, if they increase rates by 1%, it could lead to a 0.5% drop in how much businesses spend on investments. This can slow down the overall economic growth.
Uncertainty: High inflation creates a lot of confusion about the future. This uncertainty can make people hesitant to invest for the long term, which can slow down growth.
Income Distribution: Inflation can hit low-income families the hardest. This can make the gap between rich and poor wider and slow down progress for everyone.
In short, inflation affects how much we can buy, how banks operate, and it can create worries about the future, while also worsening inequality in our society.
Inflation can have a big impact on how our economy grows and develops. Here’s a simple breakdown of its effects:
Cost of Living: When inflation goes up by just 1%, it can make everyday things more expensive. This means people can buy less with their money. Since consumer spending makes up about 70% of our country's economic activity, this change really matters.
Interest Rates: To fight inflation, banks might raise interest rates. For instance, if they increase rates by 1%, it could lead to a 0.5% drop in how much businesses spend on investments. This can slow down the overall economic growth.
Uncertainty: High inflation creates a lot of confusion about the future. This uncertainty can make people hesitant to invest for the long term, which can slow down growth.
Income Distribution: Inflation can hit low-income families the hardest. This can make the gap between rich and poor wider and slow down progress for everyone.
In short, inflation affects how much we can buy, how banks operate, and it can create worries about the future, while also worsening inequality in our society.