One problem for economic stability is that in a period of inflation,
A)banks will be tempted to increase lending in order to increase profits.
B)banks will be tempted to decrease lending in order to increase profits.
C)profit-oriented banks will tend to hold excess reserves and decrease the money supply.
D)deposits will decrease and banks will have to reduce lending.

Question

Quizplus · Accepted Answer

In a period of inflation, banks may increase lending to capitalize on higher interest rates, which can lead to increased profits. This is because the money lent out today will be repaid with interest in the future, and due to inflation, the value of money decreases over time, making the interest earned more valuable in terms of today's purchasing power.

One Problem for Economic Stability Is That in a Period