Question

true or false (with explanation)

a. according to the Fisher effect, when the inflation rate rises, the nominal interest rate rises by the same amount so that the real interest rate remains the same.

b. Inflation make them poorer because it raises the cost of what they buy.

c. the principle of monetary neutrality asserts that changes in the quantity of money influence nominal variables but not real variables in short run.

d. If an economy always has inflation of 10 percent per Year there is an inflation cost that will not suffer.

e. Hyperinflations occur when the goverment runs a large budget deficit, which the central bank finances with a substantial monetary contraction.

Answer 1

1. true

reason . increase or decrease in inflation are caused by nominal interest rate and it is done by federal reserve if fed increase nominal interest rate and if it also causes the inflation with same amount than real interest rate would remain same having no effect on the economy

2. false

inflation increase the cost of living but also it increases the income of people to meet the inflation.

3.TRUE

money neutrality concept states that changes in the money supply only affect nominal variables and not real variables. it shows the behavior of economy in the long run as it is the sufficient time to judge the effect of money on other variable money neutrality concept affect goods, services and wages but not overall economic productivity.

4. True

If an economy always has inflation of 10 percent per Year there is an inflation cost that will not suffer. there will be Arbitrary redistribution cost will be existing both affecting debtors and creditors.

5 false

Hyperinflation occurs when the government runs a large budget deficit and the central bank wants to finance this deficient, by an expansionary monetary policy it will increase money supply in the market or economy