Question

Gwyn owns a furniture store. She notices prices at other furniture stores have increased dramatically over the past two years. She decides she needs to expand her output because demand must be growing. However, in order to do so, she needs to find a loan. What problems could inflation cause for Gwyn?)A. Gwyn may need to spend money to update her price displays throughout the store.B. Gwyn might misinterpret rising prices associated with inflation for a higher demand.Lenders may be wary of providing C. Gwyn a loan because it is difficult to predict future price levels.D. Gwyn will need to pay more capital gains taxes.

Answer 1

B.) Gwyn might misinterpret rising prices associated with inflation for a higher demand.

Step-by-step explanation:

Inflation rate is defined as an increase in the general level of prices in an economy. Therefore if the inflation rate is increasing, you will need a larger amount of currency (e.g. dollars) to buy a certain amount of goods. As the inflation rate increases, the purchasing power of the currency decreases.

For example, if a gallon of gas costs $3, and the inflation rate is 10%, you will need $3.30 to buy the same gallon of gas. The amount of goods purchased does not increase (the demand didn't increase), only the amount of money needed to purchase the goods increases.