Which of the following is an effect of sustained inflation on the economy?

Sustained inflation creates an environment of uncertainty in the economy, which affects both planning and investment decisions. When prices rise consistently, it becomes difficult for businesses and consumers to predict future costs and revenues. This unpredictability can lead to hesitation in making long-term investments, as firms may be uncertain about future profitability or cost structure. Businesses may hold off on expanding or investing in new technologies due to the fear that fluctuating prices could undermine their return on investment.

In addition, consumers may alter their spending habits. For instance, they may choose to purchase goods quickly before further price increases, which can lead to market volatility. Overall, this uncertainty can create a ripple effect that slows economic growth, as both consumer spending and business investment are critical components of economic activity.

Other options do not accurately reflect the effects of sustained inflation. Increased purchasing power is generally the opposite of inflation, where rising prices often erode purchasing power. While incomes can stabilize in certain conditions, inflation typically leads to wage increases that may not keep pace with price increases, resulting in diminished real incomes. Lastly, while sustained inflation can lead to inefficiencies in production, it doesn't inherently lower production efficiency; it often depends on various factors such as labor costs, technological advancements, and adaptive strategies by