2. Effects of inflation on firms increases costs of production exports less competitive makes it harder to reinvest makes planning more difficult encourages speculative rather than productive investment increases costs of production exports less competitive makes it harder to reinvest makes planning more difficult encourages speculative rather than productive investment

3. Effects of inflation on households reduced purchasing power discourages saving encourages borrowing creates fiscal drag (due to higher tax bracket) has unequal effects 1. speculators win, 2. fixed income (beneficiaries) lose reduced purchasing power discourages saving encourages borrowing creates fiscal drag (due to higher tax bracket) has unequal effects 1. speculators win, 2. fixed income (beneficiaries) lose

4. Effects of inflation on trade Quantity of goods & services that we export will fall as overseas buyers purchase goods from other countries that are relatively less expensive  fall in employment in export sector worsens current account (Trade Balance) as NZ priced goods less competitive on world markets Quantity of goods & services that we export will fall as overseas buyers purchase goods from other countries that are relatively less expensive  fall in employment in export sector worsens current account (Trade Balance) as NZ priced goods less competitive on world markets

5. Effects of inflation on trade (2) High Inflation leads to high interest rates foreign Investments in NZ Increases high exchange rates. import payments exports receipts High Inflation leads to high interest rates foreign Investments in NZ Increases high exchange rates. import payments exports receipts Worsening of the current account

6. Effect of inflation on growth High inflation brings higher interest rates economic growth will fall as productive investment falls Speculative investing rises as capital gains easy to achieve in high inflation environment High inflation brings higher interest rates economic growth will fall as productive investment falls Speculative investing rises as capital gains easy to achieve in high inflation environment