Final answer:
Higher inflation leads firms to change prices more often and makes relative prices more volatile, complicating economic decision-making for both consumers and businesses. Therefore, the correct option is D.
Step-by-step explanation:
The impact of higher inflation primarily affects pricing strategies and the variability of prices in the market. High inflation encourages firms to change prices more frequently because the value of money changes more rapidly, requiring frequent adjustments to maintain profitability and match market conditions. This, in turn, makes relative prices more variable, as the frequency of price changes among different goods and services can differ, complicating the ability of consumers and businesses to make informed purchasing decisions.
In scenarios like the one experienced in Israel in 1985, where inflation was at an annual rate of 500%, stores found it impractical to update prices on a daily basis due to the sheer rapidity of price changes. As a result, it created a situation where price comparison and reaction to economic signals became exceedingly difficult, demonstrating how high and variable inflation can lead to more frequent price changes and increased variability in relative prices.