Inflation and its effects on financial planning have become increasingly prominent topics in IELTS Writing Task 2. Understanding the impact of inflation on financial planning is crucial for both test-takers and real-world financial literacy. Based on recent exam patterns, this topic appears in approximately 15% of economics-related questions.
Analysis of Task 2 Question
Some people believe that inflation has more negative effects than positive ones on individuals and society. To what extent do you agree or disagree with this statement? Give reasons for your answer and include relevant examples from your own knowledge or experience.
This question requires candidates to:
- Take a clear position on the effects of inflation
- Support arguments with specific examples
- Consider both individual and societal impacts
- Demonstrate understanding of economic concepts
Band 8-9 Sample Essay
Rising prices and their consequences represent one of the most significant economic challenges facing modern societies. While inflation can have some beneficial effects in specific circumstances, I strongly agree that its negative impacts far outweigh any potential advantages for both individuals and society as a whole.
The detrimental effects of inflation on individuals are particularly severe. Firstly, how inflation impacts fixed-income investment returns demonstrates that people’s savings lose value over time, affecting their financial security. For example, a 5% annual inflation rate means that $100,000 in savings will effectively be worth only $95,000 in real purchasing power after just one year. Additionally, wage growth often fails to keep pace with inflation, resulting in decreased living standards for many workers.
At the societal level, high inflation can destabilize entire economies. It creates uncertainty in business planning, potentially leading to reduced investment and slower economic growth. Moreover, the impact of inflation on credit card debt shows how it can exacerbate income inequality, as those with fixed incomes or limited financial resources struggle disproportionately with rising prices.
While some argue that moderate inflation can stimulate economic growth and reduce unemployment, these benefits are typically short-lived and outweighed by long-term negative consequences. The erosion of purchasing power particularly affects vulnerable populations, including retirees and students, leading to increased social inequality and economic instability.
In conclusion, although inflation may offer some limited economic advantages, its overall impact on both individuals and society is predominantly negative, necessitating careful monetary policy and financial planning to mitigate its harmful effects.
(290 words)
Band 8-9 Analysis
- Clear position and consistent argument
- Sophisticated vocabulary and complex structures
- Well-developed examples and explanations
- Excellent coherence and cohesion
- Precise academic language
Band 6-7 Sample Essay
In today’s world, inflation is a major economic issue that affects everyone. I agree that inflation mostly has negative effects on people and society, although there might be some small positive aspects.
First, inflation makes life harder for normal people. When prices go up, people cannot buy as many things as before with the same amount of money. This is especially bad for impact of inflation on student loans and other types of borrowing. For example, in my country, many families are struggling to buy basic things like food and clothes because prices keep increasing but their salaries stay the same.
Second, inflation creates problems for society. Business owners find it difficult to plan for the future because they don’t know how much things will cost later. This can make them less willing to hire new workers or expand their businesses. Also, importance of dividend-paying stocks for retirees shows how older people who rely on fixed incomes suffer greatly from inflation.
Some people say inflation can be good because it encourages people to spend money instead of saving it, which helps the economy grow. However, I think this benefit is very small compared to the problems it causes.
In conclusion, I believe inflation causes more harm than good to both individuals and society. Governments should try to keep inflation under control to protect people’s living standards.
(200 words)
Band 6-7 Analysis
- Clear but simpler argument structure
- Good but less sophisticated vocabulary
- Basic examples provided
- Adequate coherence
- Some complex sentences attempted
Key Vocabulary
- Monetary policy (n.) /ˈmʌnɪtəri ˈpɒləsi/ – Government or central bank actions to control money supply
- Purchasing power (n.) /ˈpɜːtʃəsɪŋ paʊə/ – The value of money in terms of goods it can buy
- Economic stability (n.) /ˌekəˈnɒmɪk stəˈbɪləti/ – Steady state of an economy
- Fixed income (n.) /fɪkst ˈɪnkʌm/ – Regular income that doesn’t vary
- Exacerbate (v.) /ɪɡˈzæsəbeɪt/ – Make worse
Practice Suggestions
Consider practicing with these related topics:
- The role of central banks in controlling inflation
- Impact of inflation on different age groups
- Relationship between inflation and economic growth
Share your practice essays in the comments section for feedback and discussion.