Asked by Pablo González on Jun 03, 2024
Verified
Which of the following statements is correct about the relationship between inflation and interest rates?
A) There is no relationship between inflation and interest rates.
B) The interest rate is determined by the rate of inflation.
C) In order to fully understand inflation, we need to know how to correct for the effects of interest rates.
D) In order to fully understand interest rates, we need to know how to correct for the effects of inflation.
Inflation
The pace of upsurge in the collective market prices for goods and services, decreasing the capacity to spend.
Interest Rates
The cost of borrowing money or the return on investment expressed as a percentage, typically on an annual basis.
- Examine how inflation affects nominal and real interest rates.
Verified Answer
ZK
Zybrea KnightJun 07, 2024
Final Answer :
D
Explanation :
Interest rates and inflation are closely related. Central banks often adjust interest rates to control inflation. Understanding how inflation affects the real value of money is crucial for comprehending interest rates, as inflation erodes the real value of interest earned on savings and investments.
Learning Objectives
- Examine how inflation affects nominal and real interest rates.