OTE26
01
ASSIGNMENT 2
DUE DATE: Portfolio Semester 2
2026 - Due 7 October 2026
, 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:
The overall cost of maintaining a certain standard of living increases as
prices for basic necessities like housing, food, and healthcare go up.
This can be particularly challenging for those on fixed incomes, such as
retirees, whose income does not increase at the same rate as inflation.
They may struggle to afford the same quality of life.
Wage-Price Spiral:
As prices rise, workers demand higher wages to keep up with the
increased cost of living. Employers then raise prices to cover the higher
wage costs.
This creates a cycle of increasing wages and prices, which can
perpetuate inflation. Consumers may initially benefit from higher wages,
but these gains are often offset by higher prices.
Interest Rates and Borrowing Costs:
01
ASSIGNMENT 2
DUE DATE: Portfolio Semester 2
2026 - Due 7 October 2026
, 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:
The overall cost of maintaining a certain standard of living increases as
prices for basic necessities like housing, food, and healthcare go up.
This can be particularly challenging for those on fixed incomes, such as
retirees, whose income does not increase at the same rate as inflation.
They may struggle to afford the same quality of life.
Wage-Price Spiral:
As prices rise, workers demand higher wages to keep up with the
increased cost of living. Employers then raise prices to cover the higher
wage costs.
This creates a cycle of increasing wages and prices, which can
perpetuate inflation. Consumers may initially benefit from higher wages,
but these gains are often offset by higher prices.
Interest Rates and Borrowing Costs:
