Q. Galloping inflation (or runaway inflation) is a severe form of inflation. Which of the following is NOT a typical consequence of galloping inflation?

[A] People tend to convert their cash into durable goods and non-monetary assets.

[B] The economy financial system begins to break down, with savings losing value rapidly.

[C] It leads to a stable and predictable economic environment, encouraging long-term investments.

[D] The government may resort to wage-price controls in an attempt to stabilize the economy.

Answer: C
Notes:

Explanation:

  • Galloping inflation, characterized by a rapid, sustained increase in prices (often 10% to several hundred percent annually), creates an unstable and unpredictable economic environment. It erodes the value of money, makes long-term planning difficult, and discourages investments.
  • A: People rush to buy real assets as a hedge against the rapid decline in the value of their currency.
  • B: Savings and fixed-income investments become worthless, leading to a breakdown of the financial system.
  • D: Governments often implement drastic measures, such as wage and price controls, in a desperate attempt to contain the inflationary spiral.
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