Question

True or False: with explanation please:

1- There are no costs associated with inflation if the inflation rate is unanticipated.

2-There are no costs associated with inflation if the inflation rate is perfectly anticipated.

Answer 1

1) False. When inflation is unanticipated there is cost. Borrowers benefits from this and lenders loose. Labour will loose because they may not be able to adjust their wages according to inflation.

2) True. When inflation is perfectly anticipated then all variables will adjust and there is nothing like cost. For example if labour anticipate that next week inflation will be high then they increase their wages for next week.

#Please rate positively...thank you