If inflation is anticipated, people may

Analyze the question The question asks how people typically behave when they expect inflation, meaning a general rise in prices, in the future.

Explain the concept Inflation reduces the purchasing power of money. If people anticipate it, they expect that:

• Money held today will buy less tomorrow.
• Goods and services will cost more later than they do now.

Rational consumers therefore try to protect the value of their money. They buy goods now, before prices rise. Economists call this "hedging against inflation", and the extra buying is often called hoarding or panic buying.

Step-by-step solution

• A. Save more money: Savings lose value during inflation, especially when interest rates are lower than the inflation rate. People are discouraged from saving, so this is wrong.
• B. Spend more money: People buy goods now, before prices go up. This is correct.
• C. Give out more loans: Lenders lose when inflation is anticipated, because the money repaid will be worth less. They are likely to lend less, or to charge higher interest rates. This is wrong.
• D. Spend less money: This is the opposite of what happens. Spending less would be more typical when people expect prices to fall (deflation). This is wrong.

Answer: B. Spend more money

Tip for the exam Link the expectation to the behaviour:

• Expect prices to rise → buy now (spend more, save less, lend less).
• Expect prices to fall → delay purchases (spend less, save more).

When you see "anticipated inflation", think "buy before it gets expensive."