Which of the Following Helps to Explain Why the "Inflation

question 27

Multiple Choice

Which of the following helps to explain why the "inflation fallacy" is a fallacy?

• A)Increases in the price level can be created by increases in money demand.
• B)Nominal incomes tend to rise at the same time that the price level is rising, leaving real income unchanged.
• C)As the price level rises, the value of a dollar falls.
• D)Inflation only changes real variables.

---

Definitions:

Straight-Line

A method of calculating depreciation of an asset which assumes the asset will lose an equal amount of value each year over its useful life.

Discount Rate

The interest rate used to discount future cash flows to their present value.

Tax Bracket

A range of incomes taxed at a specific rate; tax brackets result in a progressive tax system, where taxation progressively increases as income grows.

Forecast Error

The difference between the expected or predicted values and what actually occurs, usually in the context of economic or financial forecasts.