Paper 3 · Inflation and Money
Inflation damages money's function as a store of value because
Athe government replaces the currency with a new one every year
Bbanks are no longer permitted to accept deposits from the public
Cthe purchasing power of savings falls, so people hold goods instead
Dnotes and coins wear out faster when they change hands more often
Explanation: Money is meant to carry purchasing power from one period to the next. Under inflation a sum saved today buys far less when it is withdrawn, so savings, pensions and insurance policies lose real value, people hold wealth in property, livestock or foreign currency, and banks are left with less to lend for investment.
Derived from ZIMSEC Economics 4050/3 Paper 3, June 2023, Q10