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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

If an economy always has inflation of 10 percent per year, which of the following costs of inflation will it NOT suffer?

a. shoeleather costs from reduced holdings of money

b. menu costs from more frequent price adjustment

c. distortions from the taxation of nominal capital gains

d. arbitrary redistributions between debtors and creditors

To determine

Inflation and costs.

Explanation

Option (d):

It is the unexpected changes in prices (unexpected inflation) that redistribute wealth among debtors and creditors. Thus, option‘d’ is correct.

Option (a):

Inflation involves to shoe-leather costs that reduce the money holdings of the people. Thus, option ‘a’ is incorrect...

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