Suppose that, because of inflation, people in Zimbabwe go to the bank each day to withdraw their daily currency needs. This is an example of
A) Costs due to inflation induced relative price variability which misallocates resources.
B) Menu costs.
C) Shoeleather costs.
D) Costs due to inflation induced tax distortions.
E) Costs due to confusion and inconvenience.

Question

Quizplus · Accepted Answer

This situation is an example of shoeleather costs, which are the costs associated with increased efforts to reduce cash balances due to inflation. People in Zimbabwe need to withdraw their daily currency needs because of the rapid inflation, which requires them to make more trips to the bank and spend more time and effort in managing their finances.

Suppose That, Because of Inflation, People in Zimbabwe Go to the Bank