Question

Even when it is​ expected, inflation can be costly to an economy because it ​(Check all that apply​.)

A. induces households and firms to hold less​ money, thereby necessitating more frequent trips to the bank.

B. redistributes income from lenders to borrowers.

C. generates menu costs that can distort relative prices and thus impair the efficiency of markets.

D. enables government to profit from issuing fiat money at the expense of the holders of money.

E. produces tax distortions that may reduce the level of saving and investment in the economy.

Answer 1

A. Induce households and firms to hold less money, thereby necessitating more frequent trips to the bank.

C. Generates menu costs that can distort relative prices and thus impair the efficiency of markets.

D. Enables the government to profit from issuing fiat money at the expense of the holders of money.

E. Produces tax distortions that may reduce the level of saving and investment in the economy.

Option B shows the feature of unexpected inflation in which unexpected inflation arbitrarily redistributes wealth from one agent to another agent.