What is the effect of inflation on the economy?
A) Anticipated inflation creates more problems than unanticipated inflation.
B) Unanticipated inflation creates more problems than anticipated inflation.
C) Real inflation creates more problems than nominal inflation.
D) Nominal inflation creates more problems than real inflation.
E) Inflation has no impact on the economy.

Question

Quizplus · Accepted Answer

Unanticipated inflation creates more problems than anticipated inflation because it leads to unexpected transfers of real income and wealth. It also makes it difficult for individuals and businesses to plan for the future, causing uncertainty and leading to potentially inefficient decision making. Additionally, inflation can reduce the value of savings and fixed-income assets, such as bonds, which can harm investors and retirees.

What Is the Effect of Inflation on the Economy