Your Friend Shahla Argues That Inflation Is Bad for the Economy

question 28

Multiple Choice

Your friend Shahla argues that inflation is bad for the economy because it lowers everyone's purchasing power.How would an economist respond to Shahla's statement?

• A) Her statement is true.
• B) Her statement is false because inflation redistributes income but does not change the average level of income in the economy.
• C) Her statement is true when everyone's nominal income changes by the same amount.
• D) Her statement is true when wages and benefits are not indexed to the CPI.
• E) Her statement is true only in a closed economy.

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Definitions:

Dividends

Dividends are a portion of a company's earnings distributed to its shareholders as a reward for their investment in the company.

Expense

Money spent or costs incurred by a business in the course of generating revenues.

Increase Stockholders' Equity

Refers to the growth in the equity portion of a company's balance sheet, signifying a rise in the net assets owned by shareholders.

Transactions

Financial events or exchanges that affect a company's assets, liabilities, or equity, and must be recorded in the accounting records.