Explain why inflation degrades the information content of prices.
What will be an ideal response?
For markets to work efficiently, prices must provide information that individuals and firms need to ensure that resources are allocated to their most productive uses. But when all prices rise together (inflation) understanding the reasons for price changes becomes difficult and decisions will likely be more inefficient as people try to guess why any particular price rose. The more variable the rate of inflation, the more that it undermines the information content of prices.
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Checking deposits are included in
A) M1 only. B) M2 only. C) M1 and M2. D) neither M1 nor M2.
If this game is played once, then
a. Firm A will charge a lower price and firm B will charge a lower price b. Firm A will charge a higher price and firm B will charge a lower price c. Firm A will charge a lower price and firm B will charge a higher price d. Firm A will charge a higher price and firm B will charge a higher price
In a market characterized by many buyers and one seller, investment in informative advertising by a seller can ____ the price of a commodity to customers and lower their _____ cost of acquiring information
a. decrease; sunk cost b. increase; transaction cost c. increase; sunk cost d. decrease; transaction cost
Which of the following is an example of crowding out?
a. An increase in government spending increases interest rates, causing investment to fall. b. A decrease in private savings increases interest rates, causing investment to fall. c. A decrease in the money supply increases interest rates, causing investment to fall. d. An increase in taxes increases interest rates, causing investment to fall.