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As a result, they can only purchase fewer goods and services than before. Also, the persistent increase in prices will lead to an increase in the cost of living. Assuming ceteris paribus, living standards will be lowered since luxuries have to be given up to pay for the basic necessities.
When prices change rapidly and in an unpredictable manner, both consumers and producers will find it difficult to calculate relative prices necessary for their rational decision making process. The different rates of changes in prices will result in changes in relative prices and this may lead to inappropriate production and consumption decisions, hence a misallocation of resources...
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