When Inflation Is Much Higher Than Expected, Which of the Following

question 123

Multiple Choice

When inflation is much higher than expected, which of the following is true?

• A)Nominal incomes are lower than expected.
• B)Real interest rates are higher than expected.
• C)Income is redistributed from those whose expenditures are fixed toward those who receive a fixed income.
• D)Nominal interest rates are lower than expected.
• E)Real interest rates are lower than expected.

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Definitions:

Par Value

The face value or nominal value of a stock or bond, set by the issuing company.

Credit Derivatives

Financial instruments used to manage exposure to credit risk by transferring it from one party to another without transferring the underlying assets.

Recovery Value

The estimated amount that can be reclaimed from an asset at the end of its useful life.

Convertible Bond

A type of bond that can be converted into a predetermined number of the issuer's stock shares.