If the inflation rate is zero,changes in relative prices signal a change in the _____ for the economy.
A) Production possibilities
B) Unemployment rate
C) Level of GDP
D) Desirable mix of output

Question

Quizplus · Accepted Answer

If the inflation rate is zero, changes in relative prices (the prices of specific goods relative to others) signal a change in the desirable mix of output. This means that the adjustments in prices reflect changes in the underlying demand and supply conditions for different goods and services in the economy, allowing resources to be allocated more efficiently. In other words, relative price changes help the market coordinate production and consumption decisions in response to changes in tastes, technology, or resource availability. Therefore, a zero inflation rate implies a more stable macroeconomic environment that supports a better allocation of resources and welfare gains for consumers.

If the Inflation Rate Is Zero,changes in Relative Prices Signal