Final answer:
Inflation degrades the information content of prices because it blurs the price signals in a market economy, making it difficult to understand what is happening in the market. It also creates uncertainty in comparing prices and finding the best deal.
Step-by-step explanation:
Inflation degrades the information content of prices because it blurs the price signals in a market economy. When there is inflation, prices are perceived more vaguely, like a radio program received with a lot of static. This makes it difficult to understand what is happening in the market.
For example, if the prices of goods and services are increasing due to inflation, it is unclear whether the higher prices are a result of increased demand, decreased supply, or just general inflation. This uncertainty makes it challenging for businesses and individuals to react to economic signals and make informed decisions.
In addition, when there is inflation, it becomes harder to compare prices and find the best deal. This is because the levels and changes in prices become uncertain, making it difficult to determine if a higher price is due to inflation or a change in the quality or supply of the product.