If a business firm enters into nominal contracts that fix its revenue at a constant level and inflation turns out to be less than expected the firm's stock price is likely to fall, other factors held constant.

Question

Quizplus · Accepted Answer

If inflation is lower than expected, the real value of the firm's fixed nominal revenues increases, potentially leading to higher profits and possibly a higher stock price, other factors held constant.

If a Business Firm Enters into Nominal Contracts That Fix