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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

List and describe six costs of inflation.

To determine

Inflation costs.

Explanation

Economists have identified six costs of inflation, which are listed as follows:

  • 1) Shoe-leather costs associated with reduced money holdings: It arises because inflation causes people to spend resources and going to the bank often.
  • 2) Menu costs associated with following.
    • a) More frequent adjustment of prices: It occurs when people spend resources, changing their posted prices.
    • b) Increased variability of relative prices. It causes a misallocation of resources. This is because this cost occurs as general process rise; a fixed dollar price translates into a declining relative price, which is constantly changing, causing the misallocation of resource...

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