Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Consumers are likely to save more as they anticipate higher prices in the future.
B
Consumers tend to spend more immediately to avoid higher future prices.
C
Consumers' savings behavior remains unchanged regardless of inflation expectations.
D
Consumers only save more if interest rates rise alongside inflation.
Understanding the Answer
Let's break down why this is correct
Answer
When people expect inflation to rise, they often change how they save money. This is because they worry that their money will lose value over time if prices go up. For example, if someone believes that prices will increase in the future, they might choose to spend their money now instead of saving it, thinking it’s better to buy things before they cost more. Additionally, if interest rates on savings accounts don’t keep up with inflation, the real value of their savings will decrease, making saving less appealing. Overall, rising inflation expectations can lead people to save less and spend more.
Detailed Explanation
When people think prices will go up, they want to buy things now. Other options are incorrect because Some might think saving more is smart, but if prices rise, people often feel they need to spend now to avoid paying more later; It's a common belief that savings don't change, but inflation makes people act differently.
Key Concepts
Inflation expectations
Savings behavior
Topic
Real Interest Rates and Inflation
Difficulty
medium level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.