The Circular Flow Model:
a. Shows that inflation harms consumers and boosts business profitability.
b. Proves that inflation reduces the purchasing power of consumers and does not affect businesses.
c. Has no application to questions relating to inflation.
d. Suggests that when the actual inflation was expected, it may not harm anyone.
.D
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If the expected inflation rate was 2.5%, the expected real interest rate was 4.0%, and the real interest rate turned out to be 5.1%, then the nominal interest rate equals
A) 1.4%. B) 1.5%. C) 2.6%. D) 6.5%.
Price controls will tend to cause misallocation of resources because
a. production (or opportunity) cost no longer corresponds to market price. b. people are unable to determine their preferences at the high or low price. c. producers no longer have incentive to be profitable. d. consumers no longer have incentive to spend their income efficiently.