Some countries have had high inflation for a long time. Others have had low or moderate inflation for a long time. Which of the following, at least in theory, could explain why some countries would continue to have high inflation?
A)High-inflation countries have relatively small sacrifice ratios and so see no need to reduce inflation.
B)Inflation reduction works best when it is unexpected, and people in high-inflation countries would quickly anticipate any change in monetary policy.
C)In a country where inflation has been high for a long time, people are likely to have found ways to limit the costs.
D)Persistently low inflation has costs in terms of high unemployment.

Question

Quizplus · Accepted Answer

In countries where inflation has been high for a long time, people may have found ways to cope with the costs, such as indexing wages and prices to inflation or holding assets that appreciate in value during high inflation. This may create an environment where there is less pressure to reduce inflation.

Some Countries Have Had High Inflation for a Long Time