Economic theory argues that there will be fewer real effects from inflation as long as the
A)actual rate of inflation is less than 5%.
B)anticipated rate of inflation is more than the actual rate of inflation.
C)anticipated rate of inflation is less than the actual rate of inflation.
D)inflation is fully anticipated and no one changes their behaviour.
E)whole private sector is unaware that it is happening.

Question

Quizplus · Accepted Answer

When inflation is fully anticipated and no one changes their behavior, there will be fewer real effects from inflation as individuals and businesses can adjust their expectations and make decisions accordingly. They will take steps to protect themselves against the anticipated level of inflation and will not be caught off guard. Therefore, inflation becomes less destabilizing as households and the private sector have already factored it into their actions.

Economic Theory Argues That There Will Be Fewer Real Effects