Why Is High and Uncertain Inflation Damaging to the Economy

question 81

Multiple Choice

Why is high and uncertain inflation damaging to the economy? Because in the presence of high and uncertain inflation,

• A)the price system is no longer capable of effectively signalling changes in relative scarcity through changes in relative prices.
• B)individuals who receive their incomes in fixed nominal terms are made worse off.
• C)there can be unexpected reallocations of real income between workers and firms.
• D)there can be unexpected reallocations of real income between borrowers and lenders.
• E)All of the above.

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Definitions:

Oligopolistic Industry

An industry dominated by a small number of large firms, each of which can influence the market price and strategy, leading to competitive yet interdependent market conditions.

Industry Cost

The total expenses incurred by firms operating within a specific industry, including production, labor, and capital costs.

Demand Conditions

pertain to the nature and size of the market demand for products or services in a given industry, influencing competitive strategy and innovation.

Pure Monopolist

A single seller in a market with no close substitutes for the product, giving the seller significant control over prices.