Inﬂation is undesirable because it
A) arbitrarily redistributes real income and wealth.
B) invariably leads to hyperinﬂation.
C) usually is accompanied by declining real GDP.
D) reduces everyone's standard of living.

Question

Quizplus · Accepted Answer

Inflation arbitrarily redistributes real income and wealth because it affects different individuals and groups in different ways. Those who can easily adjust to inflation (such as individuals with high levels of fixed-income assets like bonds) may see their real income and wealth decrease, while those with more flexible income sources (such as individuals with stocks or real estate investments) may be less negatively affected. Therefore, inflation can lead to an unfair distribution of income and wealth.

Inﬂation Is Undesirable Because It