Final answer:
Unit-of-account costs arise from the way inflation makes money less reliable as a unit of measurement. This can lead to purchasing power redistributions, blurred price signals, and long-term planning difficulties. Option (c) is the correct answer since it directly addresses the reliability of money as a unit of measurement during inflation.
Step-by-step explanation:
Unit-of-account costs in economics refer to the issues that arise when using money as a measurement of value, particularly in times of inflation. Option (c) - 'arise from the way inflation makes money less reliable as a unit of measurement' is the correct answer to the question about the unit-of-account costs.
Inflation can cause money to be an unreliable measure of value, which can lead to problems such as unintended redistributions of purchasing power, blurred price signals, and difficulties in long-term planning.
People holding cash or financial assets with returns that do not keep pace with inflation will experience a reduction in their purchasing power. For instance, money in a savings account earning interest below the inflation rate effectively yields a negative real rate of return.
Thus, inflation complicates financial decision-making, as nominal returns may not reflect actual increases in wealth or purchasing power.
High inflation rates can also obscure price signals, making it challenging for markets to operate efficiently and complicating long-term savings and investment decisions. Businesses may spend more effort and resources on profiting from or protecting against inflation, rather than focusing on productivity, innovation, or improving services.