Suppose that consumer preferences are changing, so that more consumers want to buy chicken and fish and fewer want to buy beef and pork.
a. If inflation is low and fully anticipated, how would you expect the relative price of these goods to change, and how would that affect production of these goods?
b. Suppose now that inflation is volatile, so that it is difficult to tell the difference between an increase in the price of an individual good and an increase in the overall price level. How might volatile inflation lead to a misallocation of resources?