Inflation Reduces Economic Efficiency Because It Does Each of the Following

question 119

Multiple Choice

Inflation reduces economic efficiency because it does each of the following except:

• A)Distort incentives through interaction with the tax laws.
• B)Obscure information transmitted by prices.
• C)Induce people to minimize cash holdings.
• D)Change relative prices.

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Definitions:

Scarce Supply

A situation where the availability of a product or service is limited relative to the desire or demand for it.

Market System

A market economy characterized by investment, production, and distribution decisions that are influenced by the forces of supply and demand, with the prices of goods and services being established in a system where they are allowed to fluctuate freely.

Private Ownership

The legal possession of assets, resources, or property by individuals or corporations rather than by the state or public entities.

Consumer Sovereignty

The concept that consumers' preferences and choices dictate the production and consumption of goods and services in an economy.