Question

what is the main problem with inflation for net spenders? group of answer choices they have less funds available to invest. they must use more accumulated savings to pay for consumption. they must use less accumulated savings to pay for consumption. they have more funds available to invest.

Answer 1

The main issue with inflation for net spenders is that their savings have reduced purchasing power, requiring more savings for consumption and complicating long-term financial planning.

Step-by-step explanation:

The main problem with inflation for net spenders is that they must use more accumulated savings to pay for consumption.

During inflationary periods, the buying power of cash diminishes, meaning that each dollar buys less than it did before. This is particularly challenging for those with money in financial assets, like savings accounts, that don't yield a return matching the inflation rate. If inflation rises above the interest rate their savings earn, they experience a negative real rate of return.

Long-term planning becomes difficult with high inflation as it is challenging to predict the future value of money. Those with nominal fixed-income investments, like some pensions, can lose purchasing power over time. Moreover, even low rates of inflation over the medium to long term can complicate future financial planning, making it a significant concern for both consumers and economists.