The cost of inflation to society includes
I. the opportunity costs of resources used by people to protect themselves against inflation.
II. the diversion of productive resources to forecasting inflation.
A) I only
B) II only
C) neither I nor II
D) both I and II

Question

Quizplus · Accepted Answer

The cost of inflation to society includes both the opportunity costs of resources used by people to protect themselves against inflation and the diversion of productive resources to forecasting inflation. Inflation causes a decrease in consumer purchasing power, which prompts people to take steps such as investing in assets that offer a hedge against inflation, such as gold or real estate. This is an opportunity cost, as these resources could have been utilized in other productive activities. Furthermore, it requires a considerable amount of resources to forecast inflation correctly, and businesses and governments often hire economists and other experts to perform such analysis, diverting resources from more productive activities. Therefore, both I and II are correct.

The Cost of Inflation to Society Includes