What is the primary impact of persistent inflation on an economy?

Solution

Persistent inflation leads to a continuous increase in the general price level of goods and services over time. As prices rise, the real purchasing power of a currency diminishes, meaning that each unit of currency buys fewer goods and services. This erosion of the real value of currency can have detrimental effects on consumers' purchasing power, savings, and overall economic stability. It often necessitates adjustments, such as wage increases, and can impact the distribution of income and wealth within a society. Inflation management is a key consideration for central banks and policymakers to maintain economic stability and sustainable growth.