Inflation and Its Effects on Production

What are the three major areas affected by inflation?

• Production, employment, and income

• Foreign investments, domestic investments, and savings

• Employment, income, and savings

• Production, distribution, and non-economic effects

How does mild inflation affect an economy before reaching full employment?

• It decreases foreign investments

• It stimulates production, employment, and income

• It disrupts the economy

• It causes hyperinflation

What is a consequence of the depreciation in the value of money?

• More spending for the same goods or services

• Higher capital accumulation

• Increased foreign investments

• Increased public savings

Why might foreign investors shy away from investing in an economy experiencing inflation?

• They want to increase domestic investments

• They are attracted to high inflation rates

• They seek to avoid risks associated with inflation

• They prefer unstable economies

What is a potential result of business uncertainty due to inflation?

• Higher capital accumulation

• Increased business risks

• Diversion of resources to essential goods

• Encouragement of entrepreneurs

How does inflation lead to a diversion of productive resources?

• By increasing the quality of goods

• By reducing competition

• By stabilizing essential goods industries

• By making luxury goods industries more lucrative

What happens to the quality of goods during inflation?

• It deteriorates as cheaper alternatives are used

• It becomes more consistent

• It remains unchanged

• It improves due to higher demand

Why do traders and consumers hoard essential goods during inflation?

• To decrease future prices

• To avoid future price increases

• To increase supply

• To stabilize the market

What effect does hyperinflation have on domestic currency?

• It attracts foreign investments

• It increases purchasing power

• It stabilizes the currency

• It offers less purchasing power compared to stable foreign currencies

What is a common reaction of investors to frequent changes in the value of money?

• Decreased interest in foreign investments

• Investing in stable foreign currencies

• Increased domestic investments

• Increased confidence in home currency