The government of a DVC may force the economy to save by deliberately causing inflation. This policy is undesirable because inflation may

Question

Quizplus · Accepted Answer

Inflation can distort investment away from productive facilities and towards assets that retain their value better during periods of high inflation, such as luxury housing and precious metals. This can lead to misallocation of resources and weaken the economy in the long term. While inflation may increase the nominal value of savings, the real value of savings may still decrease due to the depreciation of the currency. Inflation is also unlikely to directly contribute to a balance of trade surplus.

The Government of a DVC May Force the Economy to Save