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

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
1.
Inflation occurs when the general price level falls from one period to the next.
Choose wisely. There is only one correct answer.
False. Inflation occurs when the general price level rises from one period to the next.
2.
To measure your gain on an investment in terms of purchasing power, you should look at its _______.
Choose wisely. There is only one correct answer.
Real interest rate. The real rate measures the return on your investments after subtracting out inflation.
3.
Evidence has shown that inflation and stocks have which relationship?
Choose wisely. There is only one correct answer.
Real returns on stocks tend to decrease when inflation increases. Remember that real returns are adjusted for inflation.
4.
Hedging is the practice of reducing risk by investing in risk-free assets.
Choose wisely. There is only one correct answer.
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.
5.
An annuity or bond whose interest rate is linked to the Consumer Price Index is considered a perfect hedge against inflation.
Choose wisely. There is only one correct answer.
True. Interest rates that are linked to the Consumer Price Index will increase at a proportional rate to inflation, making index-linked investments a perfect hedge.
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