The Concern Over Inflation

question 9

Multiple Choice

The concern over inflation

• A)is not justified since gains and losses from real wealth transfers cancel out over time for the economy as a whole
• B)is irrational since high inflation generally means high growth
• C)is attributable primarily to increased transfers arising from cost-of-living adjustments
• D)stems from the fact that inflation is rarely predictable and those households who hold fixed dollar assets will experience a loss in wealth
• E)none of the above

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Definitions:

Liquidity

Refers to how quickly an asset can be converted to cash. Liquid assets can be converted to cash quickly, whereas illiquid assets cannot.

Operating Cycle

The period of time it takes for a business to purchase inventory, sell products, and receive cash from sales.

Average Payment Period

The average amount of time it takes a company to pay off its accounts payable.

Current Ratio

A company’s current assets divided by its current liabilities.