Chapter 14.1, Problem 4R

To determine

To ascertain: The way inflation affects money.

Explanation of Solution

The effect of inflation on money's time value is that it reduces in the future the price of a dollar. Inflation raises the price of production over time, essentially reducing the amount of goods and services can purchase in the future with a dollar as opposed to current dollar.

Inflation is reducing money 's usefulness as a means of trade. High inflation means that, since the value of money is still decreasing, it becomes hard to put a value on commodities. The price of hyper inflation will increase so high in extreme cases that money is becoming useless and people are shifting into a barter economy. E.g. 1946 Hungary, 1922 Germany

Economics Concept Introduction

Introduction: Inflation measures the average price change over time within a basket of products and services. Inflation is leads to decline in the power of purchasing of a unit of money within a country.