Which of the following best defines menu costs?
A)resources used by people to maintain lower money holdings when inflation is high
B)the distortion in resource allocation created by uncertainty concerning relative price changes created by inflation
C)the distortion in incentives created by inflation when taxes do not adjust for inflation
D)the cost of more frequent price changes induced by higher inflation

Question

Quizplus · Accepted Answer

Menu costs refer to the cost of more frequent price changes induced by higher inflation. This includes the cost of updating price lists, changing price tags, updating menus, and notifying customers of the new prices. As inflation increases, businesses may need to change their prices more frequently to maintain profitability, resulting in higher menu costs.

Which of the Following Best Defines Menu Costs