Name Date 3D2 Problem Solving Worksheet Chapter 17 Buy Now or Later ? Part 1 - Setting Up the Problem As you learned in Chapter 17, inflation refers to a sustained rise in the general level of prices. During an inflationary period, although the general price level rises, the prices of certain goods or services such as calculators or computers actually may fall. Many economists now agree that the fun- damental cause of sustained inflation is the creation of too much money relative to the amount of goods and services an economy produces. People whose salaries increase faster than the rate of inflation and individuals in debt typically gain from inflation. People whose salaries lag behind the rate of inflation, savers, and creditors are hurt by inflation. Controlling inflation is very important, since high, sustained inflation can have very dire consequences for an economy. Read the following scenario and then solve the problem Scenario Monique and lan were married several years ago. They were young, had fairly good jobs, and lived in a nice apartment. They didn't have any children but want- ed to start a family soon. From the news one evening, they learned that the infla- tion rate was causing interest rates and the prices of houses to increase rapidly. "We need to buy a house now," said lan. "If we don't, we'll never be able to afford one." Monique replied. "That will mean a large mortgage and an expen- sive house payment, plus property taxes and upkeep costs! Our budget is already stretched pretty thin. It's too risky. Why don't we wait and see what happens?" "I agree," said Monique's grandmother, who was visiting for the weekend. "Inflation is really hurting my fixed income. My advice to you is to only purchase what you can afford!" Do you think Monique and lan should buy a house now or wait? Part 2 - Thinking Critically About the Problem Directions: Answer the following questions. Use a separate sheet of paper, if necessary. 1. What is a mortgage? How will rising interest rates affect mortgage payments? 2. Explain why inflation causes interest rates to increase. 3 . ) what are some risks monique and lan would be taking if they bought a ECONOMICS 37-09-71.PSW house and a large matage Dayement Inflation