Due to the distortionary effects of inflation, capital investment may be reduced due to higher price levels.

Question

Quizplus · Accepted Answer

Higher price levels caused by inflation can reduce the purchasing power of consumers and businesses, leading to a reduction in demand for goods and services. This can lead to lower revenues for businesses, which may then reduce their capital investments. Additionally, inflation can increase uncertainty and make it harder for businesses to plan for the future, leading to a further reduction in investment.

Due to the Distortionary Effects of Inflation, Capital Investment May