Question

The costs of inflation: Consider two possible inflation scenarios. In one, the inflation rate is 100% per year, but it has been at this level for three decades and the central bank says it will keep it there forever. In the other, the inflation rate was 3% for two decades but just this past year rose to 10%. Over the next 5 years, which economy do you think suffers a higher cost of inflation, and why?

Answer 1

Answer:

The economy that would suffer a higher cost of inflation in this two scenarios would be the second one: "he inflation rate was 3% for two decades but just this past year rose to 10%."

Explanation:

The rate of inflation is calculated by the amout of increase and decrease of prices in economy. That means that the prices of good and services could increase or decrease. The most harm a economy suffers is when the inflation rate cannot be calculated because it is not stable.

In this case even though a 100% inflation a year is a lot and no good, to not be able to calculate how the inflation is going to go, has a more negative effect. On economics a very imporant matter is to be able to stabilize the economy. To be able to estimate the infaltion rate, is better than it changing with out knowing exactly the percentage.

People can plan better their economy when the rate of infaltion can be estimate. It helps to the banks to planify better, and for people to plan better their future.