The costs of unexpected inflation, but not of expected inflation, are:
A) menu costs.
B) the arbitrary redistribution of wealth between debtors and creditors.
C) unintended distortions of individual tax liabilities
D) the costs of relative price variability.

Question

Quizplus · Accepted Answer

Expected inflation allows individuals and businesses to adjust their economic behavior accordingly, such as accounting for the inflation rate in setting wages and prices. However, unexpected inflation disrupts these adjustments and arbitrarily redistributes wealth between debtors and creditors, as the value of money decreases but the value of debts does not. This imposes costs on the economy that are not present with expected inflation.

The Costs of Unexpected Inflation, but Not of Expected Inflation