Reading 25: U.S. Inflation, Unemployment, and Business Cycles likely, Business, following

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LOS c: Explain the costs of anticipated inflation.

Which of the following is least likely an effect of anticipated inflation on an economy?

A) Higher transactions costs.

B) Increased economic growth.

C) Reduced investment.

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Anticipated inflation will have an adverse effect on an economy. It will decrease potential GDP and slow economic growth by diverting resources from productive activity to inflation avoidance. It increases transactions costs by making money function less well. Inflation has tax effects that distort real after-tax returns on investments. These effects reduce total investment and long-term real GDP growth.