If Inflation Is Very High, Say 50 or 100 Percent

question 92

Multiple Choice

If inflation is very high, say 50 or 100 percent a year, monetary policymakers will shift their focus to controlling:

• A)The long-term interest rate
• B)The short-term interest rate
• C)The exchange rate
• D)Money growth

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Definitions:

Nominal Interest Rate

The stated interest rate of a loan or investment without adjusting for inflation.

Real Rate

The interest rate that has been adjusted for inflation, reflecting the true cost of borrowing or the true yield on an investment.

Prices Fall

A situation in the market where the cost of goods or services decreases due to various factors such as supply and demand.

Present Value

The current value of a future sum of money or stream of cash flows given a specified rate of return.