If the Rate of Inflation Is Greater Than the Interest

question 14

Multiple Choice

If the rate of inflation is greater than the interest rate,

• A)you should consume all of your wealth in the first period.
• B)you are better off keeping your money in a mattress at home (assuming no risk of it being stolen)than at a bank.
• C)you will necessarily consume less this period than you would if the rate of inflation were less than the interest rate.
• D)you will necessarily consume more this period than you would if the rate of inflation were less than the interest rate.
• E)None of the above.

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Definitions:

Breakeven Analysis Account

A financial calculation that determines the point at which the cost of producing a product equals the revenue made from selling the product.

Quick Ratio

A financial metric that measures a company's ability to meet its short-term obligations with its most liquid assets.

Cash in Hand

The amount of cash a company or individual possesses that is readily available for use.

Inventories

The complete list of items such as products, goods in production, or materials that a company holds, intended for sale or use in the production process.