The inflation rate determines:

Question

Quizplus · Accepted Answer

The inflation rate directly affects the real price of borrowing in capital markets. High inflation rates lead to higher interest rates, making borrowing more expensive, while low inflation rates lead to lower interest rates and cheaper borrowing.

A, C, and D are not directly determined by the inflation rate. A currency's strength is affected by various factors, including inflation, but it cannot be determined solely by the inflation rate. Locations for outsourcing and import substitution regimes are influenced by various economic and political factors, not just inflation.

The Inflation Rate Determines