Question 1
Which of the following is a cost of anticipated inflation?
◦ Debtors are made worse off.
◦ If people are not fully informed about the price level changes, resources will be misallocated.
◦ The degree of risk associated with investments in the economy increases.
◦ Creditors are made worse off.
Question 2
Stopping inflation
◦ can only benefit the economy, because the price level will be reduced.
◦ may be costly, if the inflation is stopped by inducing a recession.
◦ may be costly, but the benefits of stopping inflation will always outweigh the costs of such actions.
◦ will have no benefits or costs associated with it.
Cause of Inflation
Observable Universe Before and After Inflation
How to create a price index to calculate inflation for a basket of goods