Which of the following are costs of inflation: I. it weakens the development of credit and capital markets; II. it distorts business, especially investment, behaviour; III. it raises the price of foreign goods relative to domestic goods; IV. it imposes a tax on holders of money?
Correct answer B. I, II and IV only
Explanation
Inflation erodes real returns, discouraging financial markets, distorts investment decisions and acts as a tax on money balances. It makes domestic goods dearer relative to foreign ones, so III is false.
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