7. On Expenditure

Inflation affects both the forms of expenditures —consumption as well as investment. Increased prices make our consumption levels fall as goods and services we buy get costlier. We see a tendency among the people to cut their

consumption levels aimed at neutralising the impact of price rise— making consumption expenditure fall. Exact opposite happens once prices head downward.

On the other hand inflations makes ‘investment’ expenditure increase as a result of decreased cost of money/finance (inflation brings benefit to borrower—known as ‘inflation premium’). In times of price fall just opposite happens.