In periods of high inflation,
A) people want to hold on to as much money as possible.
B) the purchasing power of money is decreasing.
C) nobody wants to work and earn income.
D) low nominal interest rates are likely to result.

Question

Quizplus · Accepted Answer

In periods of high inflation, the purchasing power of money decreases, meaning that the same amount of money can buy fewer goods and services than before. This often leads to people wanting to spend their money quickly before it loses even more value. Holding on to money becomes less attractive because its value is eroding rapidly. Additionally, high inflation can lead to higher nominal interest rates to compensate for the decrease in purchasing power, making choice D incorrect. People may continue to work and earn income, but may demand higher wages to keep up with the rising cost of living.

In Periods of High Inflation