I found this question really bizarre. During the 1920s in Germany and during the 1980s in Brazil and Israel, inflation reached hyperinflationary levels. People received their wages and spent them immediately. Companies received revenues from their sales and immediately paid them out as wages and dividends. This behavior best reflects which one of the following adverse effects of inflation for an economy? A) Increased transactions costs. B) Tax distortion. C) Gains by employers at the expense of employees. D) Increased investment risk.
I’m gonna have to go with C here because its the only correct lookin ganswer. Compaines can increase prices in the short run whereas wages are usually fixed in the short run… So the Employer benefits from earning higher revenue while paying past term wages. Please correct me if i’m wrong.
I’m going with D.
Wait wait, I take that back. I go with A
I can’t see D because high inflation you would wanna get your money invested too take advantage of increasing prices… Increase risk in holding cash yes… increase risk in investment I woudln’t say so.
answer please?
A all the way
Two for A One for C THE SUSPENSE!
This is good helps really drive the theory into your brain when you have to defend your side
You have a reason behind it being transaction costs??? Because people are forced to increase the amount of transactions and thus transaction costs?
Yeah. When you have hyperinflationary levels, consumers quickly run to spend all their money, assuming prices will increase very fast in the near future. Money functions less well so transaction costs have to be increased. The hint in the line: “Companies received revenues from their sales and immediately paid them out as wages and dividends” gives the implication that companies didn’t take advantage of higher revenues as they distributed them to workers and shareholders.
Answer is A.
I think it is D, people/companies spend all their money quickly and as previously stated this implies companies didnt take advantage of their revenues, ig investing them, consequently GDP falls due to decreased investment but I dont know, the argument for transaction costs is pretty good as well, do we know what the answer is here?
Not yet, I think that you could see all answers if you dig deep enough and let yourself get carried away tho. Its whatevers the best answer tho right!
The answer is A. I only have the Schweser Secret Sauce in front of me right now, but for a complete breakdown of why refer to CFAI Reading 26 and Cost-Push inflation.
BUMP A; I actually got this one which almost made me fall of my chair.