Inflation_{--------------------}the cost of holding money and_{--------------------}the after-tax real interest rate. A)increases; increases B)increases; does not change C)decreases; increases D)decreases; decreases E)increases; decreases

Question

Quizplus · Accepted Answer

Inflation increases the cost of holding money because it erodes purchasing power. It decreases the after-tax real interest rate because inflation reduces the real return on investments after accounting for taxes.

Inflation--------------------the Cost of Holding Money And--------------------the After-Tax Real Interest Rate

Inflation_{--------------------}the Cost of Holding Money And_{--------------------}the After-Tax Real Interest Rate