For Inflation to Have No Real Effect on the Economy

question 102

Multiple Choice

For inflation to have no real effect on the economy, leaving all decisions and their real outcomes unchanged, five conditions must be met. Which of the following incorrectly states one of those conditions?

• A) Inflation is universally and accurately anticipated.
• B) All savings and money earn the nominal interest rate.
• C) Inflation of p0 percent lowers the nominal interest rate by p0 below the no-inflation nominal rate.
• D) Only real interest income is taxable and only the real cost of borrowing is tax-deductible.
• E) Inflation raises the prices of all goods by the same percentage.

---

Definitions:

Follicle-Stimulating Hormone

A hormone secreted by the anterior pituitary gland that promotes the formation of ova or sperm.

Adrenal Glands

are small glands located above the kidneys that produce a variety of hormones including adrenaline and steroids like cortisol.

Kidneys

Vital organs involved in filtering waste from the blood, regulating blood pressure, and maintaining electrolyte balance.

Hyperthyroidism

A condition caused by excessive secretion of the thyroid glands.