A sudden increase in inflation,ceteris paribus,
A)Raises the real income of lenders relative to borrowers.
B)Raises the CPI and reduces real income.
C)Reduces the nominal income of those who have constant real incomes.
D)Makes everyone worse off.

Question

Quizplus · Accepted Answer

A sudden increase in inflation would lead to an increase in the overall price level, which would result in a reduction in the purchasing power of money. This would reduce the real income of individuals, as they would have to spend more money to purchase goods and services. Therefore, choice B is correct. The other choices are incorrect as they do not accurately reflect the impact of inflation on real income.

A Sudden Increase in Inflation,ceteris Paribus