What is the effect of a nation's high inflation on its business enterprises?
A)There would not be any impact on the long-term earnings of companies.
B)It could cause a revaluation of assets.
C)It could decrease companies' reliance on net monetary liabilities.
D)It could lead companies to hold more monetary investments.

Question

Quizplus · Accepted Answer

High inflation could cause a revaluation of assets, which would have an impact on businesses. This is because the value of assets would decrease in real terms, leading to a decrease in the overall value of businesses.

Answer: C 
 High inflation could decrease companies' reliance on net monetary liabilities. This is because debt becomes cheaper to repay in real terms as inflation rises. Therefore, businesses may choose to borrow more to fund their operations rather than relying on their own funds.

Answer: D 
 High inflation could lead companies to hold more monetary investments, since these would retain their value better than other assets. This could help to protect the value of companies' funds in real terms.

What Is the Effect of a Nation's High Inflation on Its