You Notice That When the Inflation Rate Increases, the Interest

question 363

Multiple Choice

You notice that when the inflation rate increases, the interest rate tends to increase. This observation indicates that

• A) the variables have an inverse relationship.
• B) higher inflation rates must cause a higher interest rate.
• C) a scatter diagram of the inflation rate and the interest rate will show a positive relationship.
• D) there might be false causality between inflation and the interest rate.

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Definitions:

Profit Maximizing

The process or strategy of adjusting production and operations to achieve the highest possible profit from business activities.

Economic Efficiency

A situation where resources are allocated in a way that maximizes the production of goods and services at the lowest cost.

Deadweight Loss

A loss of economic efficiency that can occur when the free market equilibrium for a good or a service is not achieved.

Cable Television

A system that delivers television programming through coaxial or fiber-optic cables directly to viewers.