A variable rate of inflation is undesirable because:
A)debtors and creditors cannot protect themselves by indexing contracts.
B)shoeleather costs are greater under variable inflation than under constant inflation.
C)menu costs are greater under variable inflation than under constant inflation.
D)variable inflation leads to greater uncertainty and risk than under constant inflation.

Question

Quizplus · Accepted Answer

Variable inflation creates uncertainty and risk as it is harder to predict future prices and adjust financial decisions accordingly. This uncertainty can lead to less investment, less confidence in the economy, and reduced economic growth. A stable, predictable rate of inflation allows for better planning and decision-making, and reduces the risk of economic instability. Choices A, B, and C are all negative effects of inflation but not specifically related to variable inflation.

A Variable Rate of Inflation Is Undesirable Because