2. In times of inflation…. what happens to the value of money?

3. The purchasing power ( real value ) of money falls It means that fewer goods are bought with the same amount of money.

4. In times of inflation…. what happens to the cost of living?

5. The cost of living rises. It means that more money is needed to support the same living standard.

6. Living standard measures the amount and types of goods and services that can be consumed.

7. Distributive effects of (unanticipated or unexpected) inflation Who gain ? Who lose, in times of inflation ?

8. Who lose? Who gain ? fixed income earners pensioners insurance policy holders money lenders depositors real asset holders insurance companies bankers borrowers government

9. Why lose ? Why gain? holders of money lose because the real value ( purchasing power ) of money falls. Who ? e.g.fixed income earners; pensioners; insurance policy holders; money lenders; depositors holders of real assets ( such as properties, jewellery ) gain because the values of these assets rise. money debtors gain because the real value of the debt falls.

10. In times of inflation... what happens to the cost of production?

11. Production cost rises. How does a rise in production cost affect the exports of the economy?

12. Exports become more expensive and thus less competitive in the world market.

13. In times of inflation…. what happens to government tax revenue?

14. Tax revenue increases because As nominal income increases during inflation, more people fall into the tax net. As income tax is based on nominal income, people pay more tax to the government. Business firms pay more profit tax because business turnover may increase during inflation.