An individual can, to some degree, reduce her vulnerability to high and unanticipated inflation by
A)insisting on long-term wage contracts
B)holding long-term bonds
C)holding cash
D)wage indexation
E)all of the above

Question

Quizplus · Accepted Answer

Insisting on long-term wage contracts and holding long-term bonds may help mitigate inflation risk, but they do not provide full protection as they may still be affected by inflation. Holding cash is not a good choice as inflation erodes the value of cash over time. Wage indexation, on the other hand, links wages to inflation, providing some level of protection against inflationary pressures. It ensures that as prices rise, worker wages also rise to maintain their purchasing power. Thus, D is the best choice for reducing vulnerability to high and unanticipated inflation.

An Individual Can, to Some Degree, Reduce Her Vulnerability to High