Question

Financial analysts said they were surprised that despite higher inflation and shrinking profits margins, investors continue pouring money into the stock market, believing that the American economy was nicely balanced, with little inflation.
(A) continue pouring money into the stock market, believing that the American economy was
(B) continue pouring money into the stock market, believing in the American economy as
(C) still continue pouring money into the stock market in the belief that the American economy as
(D) still continued to pour money into the stock market, believing in the American economy as
(E) continued to pour money into the stock market in the belief that the American economy was

Answer 1

Answer:

The correct answer is (E) continued to pour money into the stock market in the belief that the American economy was

Explanation:

Inflation can affect cash flows to a greater or lesser extent, depending on their nature. Thus inflation could affect sales prices more, or costs. The entrepreneur generally fights inflation trying to reduce costs and maintain competitive prices, but he can not against generalized inflation in the economy, and consequently his cash flows could be, in real terms, increasingly lower, by the loss of the power to buy money. In this way, inflation encourages investments with rapid recovery and that require less capital investment.