Asked by Erika Arrona on Jun 17, 2024
Verified
When the Fed increases the money supply and creates inflation, it erodes the real value of the unit of account and makes it more difficult for investors to sort successful from unsuccessful firms.
Unit of Account
A standard monetary unit of measurement of the market value/cost of goods, services, or assets.
Real Value
The value of an object or service adjusted for inflation, reflecting its true purchasing power.
- Gain insight into the effects that inflation and deflation have on the economy, including their impact on interest rates and the capacity for buying.
- Identify the differences between forecasted inflation and surprise inflation, as well as their individual costs.
Verified Answer
GG
Grace GreenJun 21, 2024
Final Answer :
True
Explanation :
Inflation, by eroding the real value of money, can obscure the true financial performance of companies, making it harder for investors to distinguish between successful and unsuccessful firms based on nominal financial metrics.
Learning Objectives
- Gain insight into the effects that inflation and deflation have on the economy, including their impact on interest rates and the capacity for buying.
- Identify the differences between forecasted inflation and surprise inflation, as well as their individual costs.
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