Which statement best describes an effect of high inflation on the economy?

High inflation creates economic uncertainty because it erodes the purchasing power of money, making it difficult for consumers and businesses to plan for the future. When prices rise rapidly, consumers may be unsure about whether their income will keep pace with rising costs, which can lead to changes in spending behavior. Businesses might find it challenging to set prices and wages appropriately, resulting in caution regarding investment and hiring decisions. This unpredictability can hinder economic growth and lead to a general lack of confidence in the economy. High inflation can also distort price signals and create mismatches in supply and demand, further contributing to uncertainty.

In contrast, while some may argue that high inflation can stimulate consumer spending as people rush to buy goods before prices rise further, this effect is typically short-lived and can be outweighed by the negative impacts of uncertainty. The other options suggest benefits that are generally not associated with high inflation; for example, it does not typically reduce the cost of living or promote savings, as higher prices can discourage both.