Inflation ________ price volatility and ________ allocative efficiency.
A) decreases; increases
B) decreases; leaves unchanged
C) increases; leaves unchanged
D) increases; decreases
E) leaves unchanged; increases

Question

Quizplus · Accepted Answer

Inflation increases price volatility as prices become less predictable and subject to sudden changes. It also decreases allocative efficiency as it distorts the signals that prices give to consumers and producers about scarce resources. Resources may be misallocated as a result, with some goods and services being overproduced and others being underproduced.

Inflation ________ Price Volatility and ________ Allocative Efficiency

Inflation Price Volatility and Allocative Efficiency