A variable rate of inflation is undesirable because:
A) debtors and creditors cannot protect themselves by indexing contracts.
B) shoeleather costs are greater under variable inflation than under constant inflation.
C) menu costs are greater under variable inflation than under constant inflation.
D) variable inflation leads to greater uncertainty and risk as compared to constant inflation.

Question

Quizplus · Accepted Answer

Variable inflation leads to greater uncertainty and risk as compared to constant inflation. This is because it is difficult for businesses and individuals to plan for the future and make informed decisions when they cannot predict the changing value of money over time. Inflation uncertainty can also have negative effects on investment, leading to slower economic growth and higher unemployment. On the other hand, A, B, and C are all negative consequences of inflation in general, but do not specifically apply to variable inflation.

A Variable Rate of Inflation Is Undesirable Because