Question

Higher inflation a. causes firms to change prices more frequently and makes relative prices less variable. b. causes firms to change prices more frequently and makes relative prices more variable. c. causes firms to change prices less frequently and makes relative prices less variable. d. causes firms to change prices less frequently and makes relative prices more variable.

Answer 1

B. causes firms to change prices more frequently and makes relative prices more variable.

Step-by-step explanation:

Very high inflation causes the so-called menu costs to rise. Menu costs are called that because they refer to the costs a firm incurrs (for example, a restaurant) when chaning its menus or bills in order to reflect the new prices.

Very high inflation or hyperinflation makes economic activity extremely difficult, and prices volatile. In extreme cases, economic calculation can become almost impossible, and people either drop the currency for another, or even resort to barter.