Final answer:
The statement that short-term interest rates are more dependent upon inflation than on current demand for money is false. Short-term interest rates are influenced by multiple factors, including monetary policy, expectations of inflation, and the demand for money. Both inflation and demand for money are important in determining interest rate levels.
Step-by-step explanation:
The question at hand is whether short-term interest rates are more dependent upon inflation than on current demand for money. This statement is false. Short-term interest rates are influenced by a variety of factors, including central bank policies, inflation expectations, and the current demand for money.
Inflation can impact interest rates, as central banks may adjust rates to control inflation. However, the demand for money also plays a critical role in determining short-term interest rates. When the demand for money rises, short-term interest rates tend to increase, as lenders can charge more due to the higher competition for funds. Conversely, when demand is low, interest rates may decrease as lenders try to encourage borrowing.
Unexpected inflation can have various effects on the economy. It can harm those receiving money in terms of wages and interest payments if these do not increase with inflation, while benefiting debtors who can repay their loans with less valuable, inflated dollars. Although low rates of inflation have little impact over the short term, in the medium to long term, they can complicate financial planning and investment decisions. High inflation can disrupt market forces and lead to inefficient pricing, as well as complicate long-term savings and investments.