When Inflation Increases Over the Long Run (Several Years)

question 35

Multiple Choice

When inflation increases over the long run (several years)

• A)Consumption will increase at a faster rate in real dollars
• B)Interest rates will move up with inflation
• C)Real GDP growth will stabilize at the rate of inflation plus 3% real growth
• D)The dollar will usually rise relative to currencies of countries where inflation is growing at a slower rate

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Definitions:

Carrying Value

The book value of assets and liabilities, calculated as the original cost minus accumulated depreciation or amortization and impairment.

Premium on Bonds Payable

The amount by which the bond's issue price exceeds its face value, reflecting the cost of issuing debt at an interest rate lower than the market rate.

Discount on Bonds Payable

The difference between the par (or face) value of a bond and its lower issuing price, representing an additional cost of borrowing for the issuer.

Straight-Line Amortization

A method of evenly spreading the cost of an intangible asset over its useful life.