Question

Unanticipated inflation leads to:

A. accurate signals that increase producer and consumer welfare.
B. faulty signals that can reduce producer and consumer welfare.
C. accurate signals that can reduce producer and consumer welfare.
D. faulty signals that increase the size of the labor force.

Answer 1

Unanticipated inflation leads to faulty signals that can reduce producer and consumer welfare. Therefore, the correct option is B.

Step-by-step explanation:

Unanticipated inflation leads to faulty signals that can reduce producer and consumer welfare. High and variable inflation weakens the incentives in the economy for prices to adjust to changes, resulting in vague price signals that are difficult to interpret. This can lead to market inefficiencies, with prices and quantities adjusting erratically and slowly, and an increased chance of surpluses and shortages.