Historically, Why Have High Inflation Rates Tended to Be Associated

question 104

Multiple Choice

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

• A)Growth in investment and savings is encouraged when consumers are judged to be overspending.
• B)High inflation leads to a decrease in purchasing power and thus increases the attractiveness of investment over consumption in the short term.
• C)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.
• D)Individuals will spend more when they expect their investments to increase in value.

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