Which of the following is not an example of inflation causing a redistribution of income because the inflation was unanticipated?
A) A firm signs a 3-year contract with a union based on a 2 percent anticipated rate of inflation per year, and the actual rate of inflation ends up being 7 percent per year.
B) A worker receives a raise in salary that is less than the rate of inflation, because management under-predicted inflation.
C) Firms have to hire an extra worker to change prices in its store because of inflation.
D) A bank collects a lower amount of interest from a loan because inflation was under-predicted.
Answer: C
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Which of the following accurately describes an effect of hurricane Katrina on GDP?
A) GDP would increase reflecting the decrease in production that occurred during the storm and the productive capacity lost in the storm. B) GDP would increase well-being. C) GDP would increase reflecting the costs of cleanup. D) GDP would decrease reflecting the costs of cleanup.
If firms differentiate their products in different ways and charge different price because of these differentiation factors, then
A) demand must be perfectly elastic. B) the law of one price is not violated. C) transactions costs are being ignored. D) the firm must not be maximizing profit.