Question

Assuming a constant real return, why are investors worse off when the inflation rate is high?

Assuming a constant real return, why are investors worse off when the inflation rate is high?

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Answer #1

When inflation rate are increasing the actual return obtained on investment is lower. Investors are not gaining much real return as most of the return are attributed to increase in inflation rate then increase due to good investment made by investors. The investors would therefore be worse off as there is no real return received and their investment are earning to cover the inflation rate. The inflation rate is earned for increase in price of products. The investment would therefore cover enough only to cover this increase in price rather than earning the expected return on investment.

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