In light of the recent news developments, this is a very important question.
Economic inflation poses a threat to everyone in our society, from the affluent elite to the impoverished poor.
No good or service is left untouched from the effects of rampant inflation.
How does inflation affect the economy you might ask? Global history is littered with examples of inflationary crises.
One of the more memorable examples is the crisis that occurred after World War I in Germany.
The German government printed massive amounts of bills, thereby decreasing their currency's value.
It cost "millions" just to buy a loaf of bread.
Present downward trends in the market and the credit crisis make the question of "how does inflation affect the economy?" especially pertinent at this time.
We must all take certain steps to protect ourselves and each other during the tough times ahead.
Of course, we haven't hit this dramatic point yet in the United States, but we must take careful action to avoid doing so.
Without question, inflation has many adverse effects.
Uncertainty about future inflation definitely discourages future investments and saving.
Some households may begin to horde wealth as they buy up consumer durables.
The natural inclinations of humans towards greed are definitely exposed in times of inflationary crisis.
This is why central banks often act to lower the interest rates in order to spur consumer spending and contain the inflationary effects.
We must remember that many of the problems stemming from inflation are actually the result of widespread consumer fear and panic.
They are not actually caused by the market itself.