Inflation has an adverse effect on your savings because:
I. It erodes the purchasing power of the dollars you have saved.
II. It increases the real rate of return on the dollars you save.
III. Unless sheltered, it increases the taxes owed on investment income.

Question

Quizplus · Accepted Answer

Inflation reduces the purchasing power of your savings (I) and may increase the taxes owed on investment income (III). Option II is incorrect because an increase in inflation usually corresponds with a decrease in the real rate of return on savings.

Inflation Has an Adverse Effect on Your Savings Because