Because of uncertainty about future inflation, the union devotes a large quantity of resources to monitoring inflation indicators in order to maximize its financial position. This illustrates the fact that:__________A. Inflation obscures relative price changesB. Inflation harms lenders and helps borrowersC. Variable inflation is associated with high transaction costs

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21-01-2020
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Because of uncertainty about future inflation, the union devotes a large quantity of resources to monitoring inflation indicators in order to maximize its financial position. This illustrates the fact that:__________A. Inflation obscures relative price changesB. Inflation harms lenders and helps borrowersC. Variable inflation is associated with high transaction costs

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Answer:

C. Variable inflation is associated with high transaction costs

Explanation:

Because of uncertainty about future inflation, it may not uncertain relative to its price change. Therefore, option A is not correct.

In order to maximize financial position, inflation harms borrowers and helps lenders, so option B is also incorrect.

Option C is correct because variable inflation is associated with high transaction costs in order to maximize the financial position. For example, if the inflation rate is 5% during first quarter, the price level is not much to disrupt the financial position. Again, in the next quarter, if the inflation rate changes to 4%, the position will be effective more. However, if it increases, it will not affect too much.