Rising inflation increases menu costs for businesses

Steps:

• Inflation rising from 2% to 5% means prices increase faster, requiring more frequent adjustments.
• Businesses face higher "menu costs" from reprinting or updating price lists and catalogs.
• These costs rise as the pace of price changes accelerates.
• Other factors like confidence or real values typically decline under moderate inflation.

Why A is correct:

• Menu costs, defined as the expense of changing prices (e.g., updating lists), increase with higher inflation rates as firms adjust more often.

Why the others are wrong:

• B: Business confidence likely falls due to uncertainty from accelerating inflation.
• C: Real income of fixed-income earners decreases as nominal income lags rising prices.
• D: Real value of consumer debt decreases, benefiting borrowers as inflation erodes debt's purchasing power.

Final answer: A