The costs of inflation are greater when it is unanticipated.

Question

Quizplus · Accepted Answer

When inflation is unanticipated, individuals and firms are not able to anticipate its effects on prices and wages. As a result, they may make decisions based on incorrect expectations, leading to a misallocation of resources and higher economic costs. In contrast, when inflation is anticipated, individuals and firms can adjust their behavior and prices accordingly, minimizing the costs of inflation.

The Costs of Inflation Are Greater When It Is Unanticipated