When the rate of money inflation increases then the prices of commodities _____.

Increase

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Decrease

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Remain constant

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Do not change

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Solution

The correct option is B Increase

Inflation affects economies in various positive and negative ways. The negative effects of inflation include an increase in the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings, and if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future. Positive effects include reducing the real burden of public and private debt, keeping nominal interest rates above zero so that central banks can adjust interest rates to stabilize the economy, and reducing unemployment due to nominal wage rigidity.

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Similar questions

If price drops and people are not willing to pay increased prices despite having more money, this leads to inflation.

List - I (Type of Inflation)	List - II (Characteristic)
A. Demand-pull Inflation	1. Initially price rises
B. Cost-push Inflation	2. Price-rise controlled by rationing and other means
C. Suppressed Inflation	3. Inflation in which prices increase as a result of increased production costs, as labour and raw materials, even when demand remains the same
D. Creeping Inflation	4. Inflation in which rising demand results in a rise in prices. 5. Fall in price of raw materials

(1) Open Inflation	A) Means more money being paid by the consumers for what they buy.
(2) Repressed Inflation	B) Where the government does not attempt to prevent the price rise.
(3) Inflation tax	C) When the government interrupts a price rise, there is a repressed or suppressed inflation.

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