Which of the following costs of inflation can be significant even if actual inflation and expected inflation are the same?
A)menu costs
B)inflation tax
C)shoeleather costs
D)All of the above are correct.

Question

Quizplus · Accepted Answer

All of the mentioned costs of inflation can be significant even if actual inflation and expected inflation are the same. Menu costs are the cost of changing listed prices due to inflation, inflation tax is the reduction in real income due to the increase in nominal income caused by inflation, and shoeleather costs are the cost incurred due to excessive money holdings to avoid the loss in purchasing power caused by inflation. These costs exist regardless of the level of inflation expectations.

Which of the Following Costs of Inflation Can Be Significant