An increase in the expected rate of inflation suggests that investors should sell the stocks of natural resource companies and purchase the stocks of public utilities.

Question

Quizplus · Accepted Answer

An increase in the expected rate of inflation usually leads to an increase in the price of natural resources, which can benefit the stocks of natural resource companies. On the other hand, public utilities may struggle to pass on higher costs to their customers, which can lead to lower profits and potential stock price declines. Therefore, investors should not necessarily sell natural resource stocks and purchase public utilities in response to an increase in the expected rate of inflation.

An Increase in the Expected Rate of Inflation Suggests That