How does inflation affect savings?
A) If inflation is small, then savings values are not affected.
B) For savings value, deflation is the only thing to worry about.
C) Only hyperinflation affects the value of savings.
D) If your savings rate of return is less than inflation, then you lose money.
E) If your savings rate of return is less than deflation, then you lose money.

Question

Quizplus · Accepted Answer

Inflation affects savings because if the rate of return on savings is less than the inflation rate, then the purchasing power of savings decreases. As goods and services become more expensive due to inflation, the value of savings decreases if the rate of return is not able to keep pace with inflation. Deflation, on the other hand, can increase the value of savings, but it is generally not desirable as it leads to economic contraction and unemployment. Hyperinflation can have severe effects on savings and the broader economy, but it is not as common as regular inflation. Therefore, the best choice is D.

How Does Inflation Affect Savings