A rise in inflation will
A)reduce interest rates and increase real GDP.
B)decrease interest rates and real GDP.
C)increase interest rates and increase spending.
D)increase interest rates and reduce real GDP.
E)increase interest rates and real GDP.

Question

Quizplus · Accepted Answer

A rise in inflation will usually lead to an increase in interest rates as it indicates a decrease in purchasing power of currency. Higher interest rates can lead to reduced spending and borrowing, which can result in a reduction in real GDP.

A Rise in Inflation Will