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:

Money Supply

The entire amount of finances available in an economy, covering all forms of cash, coins, and the funds in checking and savings accounts, at a precise moment.

Old Currency

Outdated or not in current use money forms, replaced or withdrawn by respective authorities.

Public's Desire

The general or collective wants, needs, and preferences of the population, which can influence market demand and public policy.

Bank Panics

Situations in which a large number of bank customers withdraw their deposits simultaneously due to fears that the bank will become insolvent.