Inflation creates uncertainty because
A) nominal values of prices and wages are unknown.
B) it rapidly increases output.
C) real interest rates,prices,and wages are unknown.
D) borrowing continues at a rapid pace,creating a "false boom."
E) although price confusion problems are eliminated,the shoe-leather costs are exacerbated.

Question

Quizplus · Accepted Answer

Inflation creates uncertainty because it affects the real values of interest rates, prices, and wages, making it difficult to predict future economic conditions. Nominal values of prices and wages may still be known, but their real values are uncertain due to inflation. Option B is incorrect because inflation does not increase output but rather leads to a decrease in purchasing power. Option D is incorrect because inflation can lead to a temporary increase in borrowing but does not create a "false boom" in the long term. Option E is also incorrect because although inflation may increase shoe-leather costs, this is not the main source of uncertainty created by inflation.

Inflation Creates Uncertainty Because