The existence of inflation does which of the following?
A) Reduces tax distortions.
B) Reduces shoe- leather costs.
C) Allows for the possibility of negative real interest rates.
D) Eliminates money illusion.
E) Reduces the costs associated with money illusion.

Question

Quizplus · Accepted Answer

Inflation allows for the possibility of negative real interest rates, which can be helpful in stimulating economic growth during periods of recession. However, inflation can lead to higher tax distortions and shoe-leather costs. It does not eliminate money illusion or reduce the costs associated with it.

The Existence of Inflation Does Which of the Following