The menu cost of inflation arises since
A)people hold less currency if inflation is positive and thus they take more trips to the bank
B)the central bank eventually has to restrict money supply and this causes an increase in the unemployment rate
C)lenders are less likely to give out loans and this has a negative impact on economic activity
D)resources have to be devoted to marking up prices and changing vending machines and cash registers
E)real wages and real money holdings lose purchasing power

Question

Quizplus · Accepted Answer

Menu costs refer to the costs firms face in changing their prices to keep up with inflation. This involves printing new menus, changing price tags, and updating vending machines and cash registers. These costs divert resources away from productive activities and can slow down economic activity. Hence, D is the correct answer.

The Menu Cost of Inflation Arises Since