Question

What is the risk of creating inflationary pressures in the economy by following the average of model predictions?

Answer 1

Risk of creating inflationary pressure in economy are:-

. It increases the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings.

. There is shortage of good as consumer begin hoarding out of concerns that prices will increase in future.

. Inflation also leads less investment and higher inflation leads to low competitiveness in market, it also leads to low exports of an economy.

. Inflation also reduces the saving of a person and also fall in the value of real wages of workers.

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