Inflation makes it difficult for consumers and firms to attain the message about scarcity of resources (sent by relative prices) and is therefore always bad for the economy. Question 2 options: It leads to higher demand for GBP, which results in an appreciation of the GBP. It has opposing effects on the UK's aggregate demand (AD): it discourages investment, which lowers AD, but results in cheaper imports, which boosts AD. It leads to the UK exports becoming cheaper and imports becoming more expensive. It leads to higher bond prices, which results in higher demand for UK bonds