Question

One possible benefit of moderate inflation is:

a. a reduction in boredom attributable to the changing prices.
b. increased certainty about the future.
c. the elimination of menu costs.
d. better functioning labor markets.

Answer 1

The correct answer is letter "D": better functioning labor markets.

Step-by-step explanation:

Inflation is the overall rise in prices given a certain economy. Most of the consequences of inflation are negative such as the decrease in the buying power of consumers, raise in the cost of borrowing, decrease in employment, thus, growth.

However, the fact that inflation reduces employment could be an advantage for labor markets. Under an inflationary economy, employers will request only the number of employees necessary to keep their businesses up and running and wages are likely to be adjusted according to the basic basket of goods.