Which of the following statements is correct about the relationship between inflation and interest rates?
A)There is no relationship between inflation and interest rates.
B)The interest rate is determined by the rate of inflation.
C)In order to fully understand inflation, we need to know how to correct for the effects of interest rates.
D)In order to fully understand interest rates, we need to know how to correct for the effects of inflation.

Question

Quizplus · Accepted Answer

Interest rates and inflation are closely related. Central banks often adjust interest rates to control inflation. Understanding how inflation affects the real value of money is crucial for comprehending interest rates, as inflation erodes the real value of interest earned on savings and investments.

Which of the Following Statements Is Correct About the Relationship