Asked by Meredith Murphy on Jun 29, 2024
Verified
During periods when the inflation rate fluctuates widely,_____.
A) the nominal interest rate and the real interest rate are identical
B) all money prices rise at the same rate,causing relative prices to increase
C) suppliers link the selling prices of their goods to the overall inflation rate
D) uncertainty about changes in relative prices causes a decrease in economic efficiency
E) all money prices increase at the same rate,leaving relative prices constant
Inflation Rate
The speed at which the aggregate price level for goods and services goes up, undermining the power of purchasing.
Nominal Interest Rate
The rate of interest before adjustments for inflation; the stated rate on a loan or investment.
Real Interest Rate
The Real Interest Rate is the nominal interest rate adjusted for inflation, reflecting the true cost of borrowing or the true return on savings.
- Acquire an understanding of how inflation affects the role and value of money over time.
- Identify the diverse effects inflation has on distinct economic stakeholders, including borrowers, lenders, and employees.
Verified Answer
CC
Cheyanne ChurchJul 06, 2024
Final Answer :
D
Explanation :
Uncertainty about changes in relative prices can cause a decrease in economic efficiency as it becomes more difficult for individuals and businesses to make informed decisions about production, consumption, and investment. Fluctuating inflation rates can make it challenging to predict how prices of goods and services will change in the future, which can lead to a decline in economic activity. None of the other options accurately reflect the effects of fluctuating inflation rates.
Learning Objectives
- Acquire an understanding of how inflation affects the role and value of money over time.
- Identify the diverse effects inflation has on distinct economic stakeholders, including borrowers, lenders, and employees.