What are potential consequences of sustained high inflation in the economy?

Sustained high inflation can lead to decreased consumer confidence and spending, making this the correct choice. When inflation is persistently high, the purchasing power of money diminishes. Consumers become concerned about rising prices and may hesitate to spend money, fearing that their financial situation might worsen. This decrease in consumer confidence can result in reduced overall spending in the economy, which in turn may contribute to slower economic growth or even a recession.

High inflation creates uncertainty about future prices, making consumers more cautious. They might choose to hold onto their cash instead of purchasing goods and services now because they expect prices to keep rising, leading to decreased demand. This can create a vicious cycle where businesses respond to decreased consumer demand by cutting back on investment and production, potentially exacerbating economic downturns.

In contrast, the other options present scenarios that are less likely to occur in an environment of sustained high inflation. Increased savings rates might happen if individuals choose to save in anticipation of further price increases, but generally, inflation discourages saving due to the loss of purchasing power. Stable prices leading to economic certainty is the opposite of high inflation, as inflation introduces volatility and unpredictability in market conditions. Greater investment in long-term projects is also typically reduced during high inflation periods, as businesses may