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3.4.3 Test (TST): Macroeconomics

2. Briefly explain what inflation is. Then, describe how inflation can be both helpful and harmful to an economy. (4 points)



Answer :

GinnyAnswer

Final answer:

Inflation is the rise in prices of goods and services. It can be both helpful and harmful to an economy.


Explanation:

Inflation refers to the rise in the general level of prices of goods and services in an economy over time. Inflation can be helpful as it can make wages more flexible, preventing unemployment by allowing real wages to adjust. However, high inflation can distort price signals, hinder market efficiency, and complicate long-term financial decisions.


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