When the Fed increases the money supply and creates inflation, it erodes the real value of the unit of account and makes it more difficult for investors to sort successful from unsuccessful firms.

Question

Quizplus · Accepted Answer

Inflation, by eroding the real value of money, can obscure the true financial performance of companies, making it harder for investors to distinguish between successful and unsuccessful firms based on nominal financial metrics.

When the Fed Increases the Money Supply and Creates Inflation