Home
/
Business
/
Which of the following statement(s) is/are true in the event of a high level of inflation? (Select the correct answer from the options below the statements) (1) Interest rates, wages and prices are being linked to a price index (2) The general population preferring to keep its wealth in non-monetary assets (3) The value of money is readily increased. (1) and (2) (1) only (1) and (3) (1), (2) and (3)

Question

Which of the following statement(s) is/are true in the event of a high level of
inflation? (Select the correct answer from the options below the statements)
(1) Interest rates, wages and prices are being linked to a price index
(2) The general population preferring to keep its wealth in non-monetary
assets
(3) The value of money is readily increased.
(1) and (2)
(1) only
(1) and (3)
(1), (2) and (3)

Which of the following statement(s) is/are true in the event of a high level of inflation? (Select the correct answer from the options below the statements) (1) Interest rates, wages and prices are being linked to a price index (2) The general population preferring to keep its wealth in non-monetary assets (3) The value of money is readily increased. (1) and (2) (1) only (1) and (3) (1), (2) and (3)

expert verifiedVerification of experts

Answer

4.7330 Voting
avatar
HeathElite · Tutor for 8 years

Answer

(1) and (2)

Explain

## Step 1:<br />In the occurrence of high inflation, interest rates, wages and prices often gain connectivity to a price index to keep them in balance and updated with the average price level in the economy. To maintain their worth and buying power, various situations like labour contracts and financial agreements also get tied to a price index. Hence, statement (1) stands as being valid in this event.<br /><br />## Step 2:<br />When high inflation continues, confidence in money as a storage vehicle for wealth lessens to a large scale. People often prefer transferring their wealth into solid assets to hold its value steady. That's where their preference of retaining their wealth in the form of non-monetary assets stem from. As monetary inflation disturbs the purchasing power of money, investors fall into ambiguity revolving around the future value of these non-monetary assets and the viability of their investment hurting over time due to inflation. Statement (2) is therefore true.<br /><br />## Step 3:<br />Statement (3) indicates an error in understanding the meaning behind inflation. Under ordinary cases, periods of large-scale inflation regards the decline of the value of money rather than an increase. That's the core disparity of inflation on the citizenry and the whole economy in general. Currency loses its value due to which one unit can buy comparatively fewer goods and services as before. Such deterioration of cash value this brings a vast blow on consumer as well as producer confidence. Subsequently, statement (3) remains inaccurate thereby making it false in this question.<br /><br />Given these facts and analyzing the given possible answers, the correct one gets to be the option embracing both statements (1) and (2), as both stand true in this context established by the question.
Click to rate:

Hot Questions

More x