Answer: The economy works best when the price level is stable and is predictable. Uncertainty increases if the inflation rate fluctuates unpredictably because these fluctuations increase the risk to borrowers and lenders and to employers and employees. In both instances, long-term agreements are made and if inflation differs from what was expected, one person wins and the other loses. With the lower risk from the lower inflation, more transactions are conducted, which means more economic activity and more rapid economic growth.
Answer:
ReplyDeleteThe economy works best when the price level is stable and is predictable. Uncertainty increases if the inflation rate fluctuates unpredictably because these fluctuations increase the risk to borrowers and lenders and to employers and employees. In both instances, long-term agreements are made and if inflation differs from what was expected, one person wins and the other loses. With the lower risk from the lower inflation, more transactions are conducted, which means more economic activity and more rapid economic growth.