One possible benefit from inflation is:
A. inflation causes restaurants to update their menus more often.
B. inflation reduces distortions to relative prices.
C. if nominal wages are fixed, inflation decreases real wages.
D. if nominal wages are fixed, inflation increases real wages.
Answer: C. if nominal wages are fixed, inflation decreases real wages.
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According to the new classical view, aggregate output will differ from full-employment output
A) whenever saving does not equal investment. B) only if the actual price level does not equal the expected price level. C) only if the federal government's expenditures are greater than its tax receipts. D) whenever imports exceed exports.
If a bottle of fine French wine costs US$250 in the U.S., 2500 rand in South Africa, there are transaction costs of US$50, and the exchange rate is 20 rand/US$, then
A) there is an arbitrage opportunity by buying the wine in the U.S., and selling it in South Africa and the price in South Africa will drop. B) there is an arbitrage opportunity by buying the wine in South Africa., and selling it in the U.S. and the price in the U.S. will drop. C) here is an arbitrage opportunity by buying the wine in South Africa., and selling it in the U.S. and the price in the U.S. will rise. D) there is no arbitrage opportunity.