Some researchers argue that because corporate contracts and balance sheets are in nominal terms, rising inflation reduces corporate profitability, causing stock prices to fall.

Question

Quizplus · Accepted Answer

Inflation can lead to higher input costs for companies, reducing their profit margins if they are unable to pass these costs onto consumers. Additionally, inflation can lead to higher interest rates, which can increase borrowing costs and negatively affect stock prices. Contracts and balance sheets in nominal terms do not adjust automatically for inflation, exacerbating these effects.

Some Researchers Argue That Because Corporate Contracts and Balance Sheets