High inflation means that prices are rising quickly.Question:Why is high inflation a problem for people who save money in banks?

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BlackTom AI · Accepted Answer

Here’s a careful walk-through of each option to understand what high inflation does to savers.
Option a: 'It makes saving easier.' In reality, high inflation undermines saving because the value of money falls quickly over time. While a saver might physically put money in a bank, the real purchasing power of that money declines if interest rates do not keep pace with inflation, so this statement is misleading.
Option b: 'It increases the interest paid by banks.' High inflation can influence nominal interest rates, but it does not guarantee that banks will pay more in interest to savers. In many cases, savers receive interest that is below the inflation rate, meaning the real value of their savings still falls. So as a blanket claim this is not reliably true.
Option c: 'It makes easier to get loans.' High inflation affects borrowing costs and real interest rates, but its impact on loan accessibility is not a straightforward positive effect for savers. Some savers may benefit from lower real interest on loans if they are borrowers, but this option does not address why savers specifically are harmed by high inflation, making it an incomplete and inaccurate generalization.
Option d: 'It reduces the purchasing power of money save.' This captures the core issue: when prices rise quickly due to high inflation, the money kept in banks loses value in terms of what it can buy in the future. Even if the nominal balance is the same, the real value declines unless the interest paid on savings compensates for inflation. This explanation aligns with the fundamental concept of inflation eroding purchasing power and harming savers.
In summary, options a, b, and c either misstate the relationship between inflation and saving or fail to address the core harm to savers, while option d directly describes how inflation erodes the real value of saved money in banks.

252 EC301 Principles of Macroeconomics

High inflation means that prices are rising quickly.Question:Why is high inflation a problem for people who save money in banks?

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High inflation means that prices are rising quickly.Question:Why is high inflation a problem for people who save money in banks?

High inflation means that prices are rising quickly.Question:Why is high inflation a problem for people who save money in banks?

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