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Homework answers / question archive / Everything else constant, inflation: a) Leads to an increase in a country's exports, b) Leads to a reduction in a country's imports, c) Increases the inventories above the desired level, d) b) and c), e) None
Everything else constant, inflation:
a) Leads to an increase in a country's exports,
b) Leads to a reduction in a country's imports,
c) Increases the inventories above the desired level,
d) b) and c),
e) None.
The correct answer is C) Increases the inventories above the desired level.
Everything else constant, inflation increases the inventories above the desired level. It is because inflation reduces the purchasing power of people resulting in a decrease in demand for goods. The reduction in demand for goods and services would result in an increase in the unsold goods with producers, increasing inventories above the desired level.
