Explain how inflation affects savings
Inflation discourages savings. Income tax is collected on nominal rather than real interest rates. So an increase in inflation will increase nominal interest rates and taxes, the increase in taxes in turn lowers the real return on savings and so discourages savings.
You might also like to view...
A nonrenewable resource:
A. is a production input that comes from the earth. B. can be replenished naturally over time. C. is used to regenerate an old piece of capital. D. All of these statements are true.
A reserve currency is a currency that is:
a. used exclusively to settle domestic debts. b. specifically designed for use by commercial banks to settle accounts. c. held only by bureaucrats. d. used to settle international debts by private corporations. e. held by governments to facilitate foreign exchange market interventions.
The Stopler-Samuelson Theory suggests that
a) Owners of capital tend to gain from trade b) Countries will have a comparative advantage in goods produced using factors in which the country is abundant c) Trade increase the real incomes of owners of the abundant factor of production relative to those of the owners of the scarce factor d) Commodity prices tend to fall relative to the price of manufactured goods e) Tariff protection can benefit a country which is large enough to influence the world price of traded goods f) Mexico
U.S. firms wishing to purchase European goods and services are ________ the foreign exchange market.
A. demanders of U.S. dollars in B. supplied Euros by the Fed for use in C. suppliers of Euros in D. suppliers of U.S. dollars in