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What is a common effect of high inflation on savings? (2023)

Practice Questions

Q1
What is a common effect of high inflation on savings? (2023)
  1. Increases savings
  2. Decreases savings
  3. No effect
  4. Encourages investment

Questions & Step-by-Step Solutions

What is a common effect of high inflation on savings? (2023)
  • Step 1: Understand what inflation is. Inflation means that prices of goods and services are rising.
  • Step 2: Realize that when prices go up, the money you have today can buy less in the future.
  • Step 3: Know that savings are usually kept in a bank account, where they earn interest.
  • Step 4: If inflation is high, the interest earned on savings may not keep up with the rising prices.
  • Step 5: This means that the actual value of your savings (what you can buy with it) decreases over time.
  • Step 6: Because of this, people may feel discouraged to save money, as it loses value.
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