How does inflation affect the economy?

1)   Erodes Purchasing Power. This first effect of inflation is really just a different way of stating what it is.

2) Encourages Spending, Investing. A predictable response to declining purchasing power is to buy now, rather than later.

3) Causes More Inflation.

4) Raises the Cost of Borrowing.  

5) Lowers the Cost of Borrowing.

Reduces Unemployment.

Explanation:

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