Which of the Following Is Not an Example of Inflation

question 7

Multiple Choice

Which of the following is not an example of inflation causing a redistribution of income because the inflation was unanticipated?

• A)A firm signs a 3-year contract with a union based on a 2 percent anticipated rate of inflation per year,and the actual rate of inflation ends up being 7 percent per year.
• B)A worker receives a raise in salary that is less than the rate of inflation,because management under-predicted inflation.
• C)Firms have to hire an extra worker to change prices in its store because of inflation.
• D)A bank collects a lower amount of interest from a loan because inflation was under-predicted.

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Definitions:

Financing

The act of providing funds for business activities, making purchases or investing.

Debt

Money owed by one party to another, usually reflected as loans, bonds, or lines of credit that must be repaid with interest.

Cost Of Debt

The effective interest rate that a company pays on its total debt, serving as a measure of the expense of borrowing.

Yield To Maturity

The total return anticipated on a bond if it is held until the maturity date, considering all payments of interest and principal against the current market price.