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Basics (Saving and Investing) Intermediate: Effects of Inflation on Investments

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1.
One measure of inflation in the United States is the Consumer Price Index.
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True. The Consumer Price Index measures inflation.
2.
Historically, stocks have provided a rate of return superior to the rate of inflation in the United States.
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True. Stock returns have historically outpaced inflation in the United States; this is one reason for their popularity.
3.
To measure your gain on an investment in terms of purchasing power, you should look at its _______.
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Real interest rate. The real rate measures the return on your investments after subtracting out inflation.
4.
Inflation occurs when the general price level falls from one period to the next.
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False. Inflation occurs when the general price level rises from one period to the next.
5.
Hedging is the practice of reducing risk by investing in risk-free assets.
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False. Hedging is the practice of investing in assets that reduce the risk associated with other assets in your portfolio by responding to a particular stimulus in an opposite manner.
Introduction to Effects of Inflation on Investments What Is Inflation? The Effect of Inflation on Fixed-Income Investments The Effect of Inflation on Stocks Hedging against Inflation Summary of Effects of Inflation on Investments Find out what you learned