Which of the following best describes what occurs in an economy during periods of high inflation?
A) People want to hold as much money as possible.
B) The purchasing power of money decreases.
C) Few people want to work and earn income.
D) Low nominal interest rates are likely to result.

Question

Which of the following best describes what occurs in an economy during periods of high inflation?  
A) People want to hold as much money as possible. 
B) The purchasing power of money decreases. 
C) Few people want to work and earn income. 
D) Low nominal interest rates are likely to result.

Quizplus · Accepted Answer

During high inflation, the purchasing power of money decreases, meaning that each unit of currency buys fewer goods and services. This often leads to an increase in prices, which can be difficult for individuals and businesses to afford. In response, they may attempt to find ways to minimize their expenditures, such as by reducing consumption or investing in assets that offer some protection against inflation. This can lead to a dampening of economic activity, which may further exacerbate the effects of inflation. The other choices are not accurate representations of what typically occurs during high inflation.

Which of the Following Best Describes What Occurs in an Economy