Question

In 3–4 sentences, assess the impact of inflation on economic activity

Answer 1

Inflation can have both positive and negative impacts on economic activity. On one hand, moderate inflation can signal a growing economy and stimulate spending as consumers may rush to purchase goods before prices rise further. On the other hand, high inflation can erode purchasing power, discourage investment, and reduce consumer confidence. Additionally, inflation can increase production costs, leading to higher prices, wage demands, and potential economic instability. Overall, the impact of inflation on economic activity depends on the rate and stability of inflation in the economy.