Historically,why Have High Inflation Rates Tended to Be Associated with High

question 37

Multiple Choice

Historically,why have high inflation rates tended to be associated with high nominal interest rates?

• A)Individuals will spend more when they expect their investments to increase in value.
• B)Growth in investment and savings is encouraged when consumers are judged to be overspending.
• C)High inflation leads to a decrease in purchasing power and thus increases the attractiveness of investment over consumption in the short term.
• D)The real interest rate needs to be high enough so that individuals can expect their savings to have greater purchasing power in the future than in the present.
• E)High interest rates mean that savings grow faster,and when people have more money to spend,prices will increase.

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Definitions:

Margin of Safety

The difference between actual or expected sales and the sales volume at which a company breaks even.

Fixed Costs

Rephrased: Expenses that remain constant regardless of the amount of goods or services produced by a business.

Variable Costs

Costs that vary directly with the level of production or sales volume, such as raw materials and direct labor.

Budgeted Net Income

The projected net income for a future period, based on expected revenues and expenses.