According to the Price Distortion Hypothesis

Multiple Choice

According to the price distortion hypothesis

A) inflation interferes with the information which prices convey to market participants in the absence of inflation.
B) inflation makes it easier for a firm to know whether an increase in the price of the product is due to an increase in its demand (relative to substitutes) and therefore more profitable to produce,or simply a result of the increase in the (general) price level.
C) inflation makes it easier for a buyer to know whether an increase in the price of the product denotes an increase in its price relative to substitutes and therefore buy less of the good,or simply a result of the increase in the (general) price level.
D) low or zero inflation creates 'noise' in the price system and thereby distorts the price signals,much the same way static or 'noise' makes a radio message harder to interpret.
E) moderate inflation makes it easier for households to plan their futurE.