Question

Gwyn owns a furniture store. she notices prices at other furniture stores have increased dramatically over the past two years. she decides she needs to expand her output because demand must be growing. however, in order to do so, she needs to find a loan. what problems could inflation cause for gwyn?

Answer 1

The correct answer is a combination of many problems that she could get involved with.

Step-by-step explanation:

On one hand, if Gwyn acquires a loan in order to expand her output then she will be in the situation where the loan will increase its interest rate due to the cause of inflation, where the purchasing power per unit of money will decrease drastically, therefore that she will be paying a lot more that the original amount that she expected at the beginning of the process and this could get her business into trouble because of the debt.

On the other hand, the money that she acquired with the purpose of expanding her output will have less value because of the inflation and she will have trouble at the time of focusing that money to do what she planned before.

Answer 2

The problems that inflation cause for Gywn are the following;

- She may likely to spend money in updating the display of the prices that is on the store

- In providing a loan, the lenders may be wary as it is difficult to predict the future price levels

- She may likely misinterpret the rising prices that are associated with inflation in regards for a higher demand