The cost of inflation will be minimized if ________.
A) the growth rate of inflation exceeds the growth rate of wages
B) the growth rate of inflation equals the growth rate of wages
C) the money supply is increased during times of high inflation
D) taxes are increased during the periods of high inflation

Question

Quizplus · Accepted Answer

The cost of inflation is minimized when the growth rate of inflation equals the growth rate of wages. This means that the purchasing power of incomes will remain stable and not eroded by inflation. If inflation grows faster than wages, then the cost of inflation will be high and will reduce the standard of living. Increasing the money supply or taxes during times of high inflation may help to control inflation but does not necessarily minimize the cost of inflation.

The Cost of Inflation Will Be Minimized If ________