Economic theory argues that there will be fewer real effects from inflation as long as the
A)whole private sector is unaware that it is happening.
B)anticipated rate of inflation is more than the actual rate of inflation.
C)actual rate of inflation is less than 5 percent.
D)inflation is fully anticipated and no one changes their behaviour.
E)anticipated rate of inflation is less than the actual rate of inflation.

Question

Quizplus · Accepted Answer

Economic theory argues that when inflation is fully anticipated and no one changes their behavior, there will be fewer real effects from inflation. This is because people will adjust their expectations and behavior to account for the inflation, such as negotiating higher wages or charging higher prices, which would maintain their purchasing power. As a result, the real effects of inflation, such as a decrease in the value of savings or an increase in the cost of living, would be minimized.

Economic Theory Argues That There Will Be Fewer Real Effects