Question

Using your understanding of economic history and inflation, which inflation target is most advisable? A----10-20% B-----0% C----1-2%

Of the following inflation rates, which is most likely to affect consumer behavior?

Group of answer choices

6%

17%

2.0%

1.0%

Answer 1

The inflation target of 1%-2% is generally considered desirable. The small fluctuations in price especially the expectation of rise in price in future makes the consumers demand more of a product which helps in stimulating demand which is essential for the overall economic growth.

An inflation rate of 17% is most likely to affect the consumer behavior because a 17% increase in price will lead to a huge fall in the disposable income of consumers which affect their consumption pattern. A small increase in price may not have a huge impact on the behavior of consumers but an inflation rate of 17% will surely lead to a changed consumer behavior.