Inflation Can Cause a Misallocation of Resources Because

question 198

Multiple Choice

Inflation can cause a misallocation of resources because

• A) inflation doesn't proceed evenly which means that people have a difficult time determining when a price change signals a change in relative prices.
• B) firms have to change their price labels at unusual times.
• C) the nominal rate of inflation doesn't equal the real rate of inflation.
• D) people are encouraged to borrow too much.

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Definitions:

Investing Activities

Transactions and events related to the acquisition and disposal of long-term assets and other investments, as part of a company's financial operations.

Cash Dividend

A distribution of a company's earnings to shareholders, decided by the board of directors, and paid in the form of cash.

Net Cash

The amount of cash available after accounting for cash inflows and outflows over a certain period.

Operating Activities

Activities that relate to the company's primary operations, including revenue generation, expenses, and cash flows.