Inflation Leads to ________

question 13

Multiple Choice

Inflation leads to ________.

• A)increased variability of relative prices only when it is anticipated
• B)increased variability of relative prices only when it is unanticipated
• C)increased variability of relative prices whether inflation is anticipated or not
• D)lower variability of the general price level only when it is very high
• E)none of the above

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Definitions:

Bonds

These are fixed-income investment products where an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate.

Debt Instruments

Financial assets that represent a debtor's obligation to repay borrowed money or other forms of credit to the creditor according to stated terms.

Original Issue Discount

The difference between the par (face) value of a bond and the lower price at which it was originally sold, which must be reported as interest income over the life of the bond.

Tax-exempt Debt

Debt securities issued by state or municipal governments whose interest payments are exempt from federal income tax, and sometimes state and local taxes.