Which of the following statements is TRUE about inflation?
A.
Inflation results in a redistribution of income from borrowers to lenders.
B.
Generally inflation will benefit those who are living on investment income.
C.
Purchasing power rises as inflation rises.
D.
An increase in the inflation rate could mean investors have less money to invest.
The Answer Is:
D
This question includes an explanation.
Explanation:
Inflation is the general increase in the prices of goods and services over time. Inflation reduces the purchasing power of money, meaning that a dollar can buy less than it used to. Inflation also erodes the real value of investment income, such as interest, dividends, and capital gains. Therefore, an increase in the inflation rate could mean that investors have less money to invest, as their income and savings lose value.
References = Canadian Investment Funds Course, Unit 5: Types of Investments, Lesson 1: Economic Factors and Financial Markets, Section 5.1.2: Inflation1; CIFC prepkit, Chapter 5: Types of Investments, Question 5.1.2 2
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