Inflation Is Problematic If

question 38

Multiple Choice

Inflation is problematic if

• A)it is less than the percentage increase in nominal income.
• B)it is less than the nominal return on saving.
• C)it equals the growth rate of real GDP in the long run.
• D)it distorts relative prices,causing a misallocation of resources.

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Definitions:

Duration Predictions

Predictions about the length of time it will take for the price of a bond to be repaid by its internal cash flows.

Yield Falls

A situation where the yields on bonds decrease, which typically occurs when bond prices increase.

Convexity

A measure of the curvature or the degree of the curve in the relationship between bond prices and bond yields.

Basis Points

A unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument; one basis point is equivalent to 0.01%.