Unanticipated inflation arbitrarily redistributes income because:
A) actual tax revenue decreases and so do government subsidies.
B) medical costs rise faster than health insurance premiums.
C) people forecast relative prices incorrectly and either gain or lose purchasing power.
D) nominal interest rates fall below real interest rates.

Question

Quizplus · Accepted Answer

Unanticipated inflation causes people to forecast relative prices incorrectly, which leads to some individuals gaining or losing purchasing power. This redistribution of income is arbitrary because it is not based on any particular economic merit or performance, but rather on individuals' ability to correctly predict and react to the inflation.

Unanticipated Inflation Arbitrarily Redistributes Income Because