The correct answers are 1) Interest rates increase, 4) Uncertainty increases, and 5) Real income declines.
The effects of rapid inflation are interest rates increase, uncertainty increases, and real income declines.
A rapid increase in inflation can damage the country's economy and can create social problems. Low-income people are going to find more expensive products on the market. Real income is going to fall. Real interest rates are going to be negative. Higher borrowing costs for people and businesses. Uncertainty in the market and companies. They would be more cautious when investing their money.
Answer:
The correct option all, that is, interest rate increases, banks loan more money, unemployment declines, uncertainty increases and real income declines.
Explanation:
An economy when faces rapid inflation would experience number of changes and uncertainties. When there is an increase in inflation then it would encourage people to demand more, which increases demand for credits/loans. Therefore, it directly increases the rate of interest and capacity of banks to loan out more money.
Similarly, the consumers would also feel a decline in their real income due to increased prices of commodities. On the other hand, inflation period encourages inventors to invest more, which will add to increased employment level in the economy.
Therefore, the uncertainties rises due to a rapid rise in prices and risk.
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