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.

---

Definitions:

Addicts

Individuals who have developed a dependency on substances or behaviors that significantly impair their health or social functioning.

Cross-elasticity of Demand

A measure of how the quantity demanded of one good responds to a change in the price of another good, indicating substitutes or complements.

Normal Goods

Items for which demand increases as consumer income rises, showing a positive correlation between income and demand.

Law of Supply

A fundamental principle stating that, all else being equal, an increase in the price of a good will result in an increase in the quantity supplied.