Indexing reduces the ability for relative price changes to allocate resources where they are more valuable.

Question

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Indexing refers to the practice of adjusting prices or wages automatically in response to changes in a price index, such as inflation. While indexing can help protect against the erosion of purchasing power caused by inflation, it can also reduce the ability for relative price changes to allocate resources efficiently because prices and wages may not change in response to changing market conditions. This can lead to misallocations of resources and a less efficient economy overall.

Indexing Reduces the Ability for Relative Price Changes to Allocate