Inflation has no effect on an economy's well-being if

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Quizplus · Accepted Answer

If inflation is universally and accurately anticipated, prices and wages adjust accordingly, and relative prices are unaffected. If the nominal rate of interest for both savers and borrowers rises by an amount just equal to the rate of inflation, then the real interest rate remains stable, allowing savers to maintain the purchasing power of their savings and borrowers to repay their debts with money that has reduced purchasing power. Therefore, all of these conditions must be met for inflation to have no effect on an economy's well-being.

Inflation Has No Effect on an Economy's Well-Being If