Inflation is problematic if
A)it is less than the percentage increase in nominal income.
B)it is less than the nominal return on saving.
C)it equals the growth rate of real GDP in the long run.
D)it distorts relative prices,causing a misallocation of resources.

Question

Quizplus · Accepted Answer

Inflation distorts relative prices by causing an increase in the overall price level, which may not reflect changes in relative prices between goods and services. This can cause a misallocation of resources, as consumers and producers may make decisions based on distorted prices, resulting in inefficiencies in the economy. Choices A and B are not problematic situations as they indicate that inflation is not high enough. Choice C is not problematic as long as inflation does not exceed the growth rate of real GDP.

Inflation Is Problematic If