Historically, Why Were High Inflation Rates Associated with High Nominal

question 51

Multiple Choice

Historically, why were high inflation rates 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.

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