a. If we have a situation of very high inflation, which is also expected and predictable; in Such situation:
i. the wages would increase by the expectation,
ii. nominal interest rates would be set to the expectation, and
iii. the prices would reflect the expectations.
In such situations, where inflation is both expected and predictable, the expectations most of the time take shape of reality.
b. If, however, the inflation is both unpredictable and unexpected, in such situations:
i. The incomes will be lagging and there will be an unwillingness to hold the cash balances.
ii. The borrowers benefit at the expense of the lenders, in the case of very high inflation. In such situations, the interest rates will include the uncertainty premium.
iii. There will be frequent price changes. This will also increase the menu cost of frequent price revisions.
iv. A very unpredictable inflation level also increases the information content of the prices.