A high rate of inﬂation is likely to cause a
A) high nominal interest rate.
B) low nominal interest rate.
C) low rate of growth of nominal GDP.
D) decrease in nominal wages.

Question

Quizplus · Accepted Answer

A high rate of inflation typically leads to an increase in nominal interest rates as lenders demand higher returns to compensate for the depreciating value of their money. Option B is not correct because low nominal interest rates are usually associated with low inflation or deflation. Option C is not directly related to inflation and could depend on other factors such as productivity growth and government policies. Option D may or may not happen depending on the bargaining power of workers and the adjustment mechanisms in the economy.

A High Rate of Inﬂation Is Likely to Cause a