OTE2601 Assignment 2 Due 5 July 2024

Name of module ECONOMICS MANAGEMENT SCIENCES
Module code(s) OTE2601

ASSIGNMENT 2 QUESTIONS

QUESTION 1

Inflation is the word used to indicate a drop in the buying power of money as a result
of a general rise in prices of goods and services. In simple terms, inflation is an
increase in prices over a period of time. Inflation is what makes your money worth less
over time – it is your money’s biggest enemy. It reduces the buying power of money
month by month and year by year.

1.1 How does inflation affect the consumer? Elaborate on the most important
characteristics of inflation

(Study guide pg. 16)

 Reduced Purchasing Power:

As prices rise, the same amount of money buys fewer goods and services.
Consumers find that their money doesn’t stretch as far, leading to a decrease in their
standard of living. For instance, if the price of groceries, fuel, and other essentials
increases, people may have to cut back on discretionary spending such as
entertainment or dining out.

 Rising Cost of Living: