In the medium run,an increase in inflation causes
A)an increase in the opportunity cost of holding money.
B)a reduction in the opportunity cost of holding money.
C)no change in the opportunity cost of holding money.
D)individuals to switch from holding bonds to money and increase their real money balances.

Question

Quizplus · Accepted Answer

In the medium run, an increase in inflation leads to a decrease in the purchasing power of money. This means that people will require more money to buy goods and services that they could previously buy with less money. As a result, people will reduce their holdings of money, and this, in turn, will increase the opportunity cost of holding money. Therefore, option A is the correct option.

In the Medium Run,an Increase in Inflation Causes