If there is inflation, then a firm that has kept its price fixed for some time will have a
A)high relative price.Relative-price variability rises as the inflation rate rises.
B)high relative price.Relative-price variability falls as the inflation rate rises.
C)low relative price.Relative-price variability rises as the inflation rate rises.
D)low relative price.Relative-price variability falls as the inflation rate rises.

Question

Quizplus · Accepted Answer

Inflation means the general level of prices is rising. If a firm has not changed its prices, its prices will be relatively lower compared to others who have adjusted their prices upwards. Relative-price variability tends to increase with inflation because different firms adjust their prices at different times and by different amounts.

If There Is Inflation, Then a Firm That Has Kept