Question

What effect does high inflation have on interest rates?

a.

It leads to lower interest rates

b.

It decreases the inflation risk premium of interest rates

c.

It has no impact on interest rates

d.

It leads to higher interest rates

Answer: (d).It leads to higher interest rates Explanation:High inflation increases inflation risk premium of interest rates, resulting in higher interest rates to compensate for inflationary pressures.

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Q. What effect does high inflation have on interest rates?

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