Inflation Reduces Economic Efficiency Because It Does Each of the Following

question 92

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:

Domestic Output

The total value of all goods and services produced within a country's borders in a specific time period, also known as Gross Domestic Product (GDP).

Arsenal of Democracy

A phrase used by President Franklin D. Roosevelt during World War II, describing the United States' role in supplying Allied nations with military materials.

Adam Smith

Scottish economist known as the father of modern economics, best known for his theory on free markets and the invisible hand guiding economies.

Specialization and Exchange

Economic strategy where individuals, regions, or nations focus on producing goods in which they have a comparative advantage, and then trade with others for what they need.