For Inflation to Have No Real Effect on the Economy

question 10

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 raises the nominal interest rate by p0 above the no-inflation nominal rate.
• D) Only nominal interest income is taxable and only the nominal cost of borrowing is tax-deductible.
• E) Inflation raises the prices of all goods by the same percentage.

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Definitions:

Behavioral School

A perspective in psychology focusing on observable behaviors and the ways in which learning influences behavior, discounting internal mental processes.

Watson

John B. Watson, an American psychologist who established the psychological school of behaviorism, emphasizing the importance of observable behaviors over internal phenomena like thoughts and emotions.

Developmental Psychologists

Specialists in psychology who study the growth and changes in behavior, thinking, and emotions throughout a person's life.

Physiologically

refers to the functions and processes that occur within living organisms and their parts.