Inflation can cause a misallocation of resources because
A) inflation doesn't proceed evenly which means that people have a difficult time determining when a price change signals a change in relative prices.
B) firms have to change their price labels at unusual times.
C) the nominal rate of inflation doesn't equal the real rate of inflation.
D) people are encouraged to borrow too much.

Question

Quizplus · Accepted Answer

Inflation doesn't proceed evenly, which means that prices of different goods and services may change at different rates. This can cause confusion and difficulty in determining when a price change signals a change in relative prices. As a result, resources may be misallocated to sectors that are experiencing inflationary pressures, while other sectors may be overlooked.

Inflation Can Cause a Misallocation of Resources Because