An increase in inflation leads to higher ________.
A)output
B)spending
C)real interest rate
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

An increase in inflation leads to a higher nominal interest rate. If the nominal interest rate does not increase at the same rate as inflation, then the real interest rate (nominal interest rate minus inflation rate) will decrease. Therefore, higher inflation leads to a higher real interest rate. Higher output and spending may be a result of inflation, but they are not direct consequences.

An Increase in Inflation Leads to Higher ________