Question

Inflation is important because: all answers are correct O it affects the real interest rate O it affects the value of one's income O it affects the real rate of return one earns on investments O it often affects the negotiation of wage contracts and the size of the cost of living allowances FO F7 F8 F9 F10 F11 % & 3 5 6 7 00 9 E R T Y u D ת G H J X с

Answer 1

Option (a) is the correct ( all the answers are correct)

Inflation affects real interest rates as we know that according to the fisher equation

Real interest = nominal interest - inflation rate

It affects the value of one's income it determines how much we can buy given our income due to increase in price levels

It affects real rate of return on investment and also affects negotiation of wage contracts as worker union predicts the level of inflation to demand higer wage rate to increase their real wage.