Asked by Susana Contreras on Jul 12, 2024
Verified
Which statement is true?
A) Only the poor are hurt by inflation.
B) During times of inflation the nominal interest rate is considerably higher than the real interest rate.
C) People living on fixed incomes are generally helped by inflation.
D) None of the statements are true.
Fixed Incomes
Financial investments that provide returns in the form of fixed periodic payments and the eventual return of principal at maturity.
Nominal Interest Rate
The real interest rate plus the inflation rate.
Real Interest Rate
The interest rate adjusted for inflation, providing a more accurate measure of the cost of borrowing and the real yield to investors.
- Fathom the correlation between inflation rates and the prosperity of various economic actors.
Verified Answer
LK
leela khadkaJul 14, 2024
Final Answer :
B
Explanation :
During times of inflation, the nominal interest rate might be higher, but the real interest rate might be lower or even negative when adjusted for inflation. This can hurt savers and lenders who receive fixed nominal interest rates. Option A and C are incorrect as both suggest that only a certain group of people (the poor or those on fixed incomes) are affected by inflation, which is not true. Option D is incorrect as there is at least one true statement.
Learning Objectives
- Fathom the correlation between inflation rates and the prosperity of various economic actors.