In a market economy,uncertain levels of inflation
A) make prices less useful as signals for resource allocation.
B) prompt firms to enter into fewer short-term contracts, and more long-term contracts, with suppliers.
C) balance out income redistribution in the long run.
D) are more beneficial to lenders than to borrowers, as lenders have a tendency to overestimate the expected inflation rate.

Question

Quizplus · Accepted Answer

Uncertain levels of inflation make prices less useful as signals for resource allocation because it becomes difficult for firms and consumers to distinguish between changes in prices due to inflation and changes in prices due to changes in supply and demand. As a result, resource allocation becomes less efficient, leading to potential wastage of resources.

In a Market Economy,uncertain Levels of Inflation