ECON 248 11.2 Costs Of Inflation

A typical answer as to why inflation is bad is that it causes prices to rise, lowering the () of buyers.

Purchasing Power

Inflation also raises the average () of a person, making the previous statement a fallacy.

Income

Inflation is more of a () than anything which alters people’s spending behaviour.

Tax

The held money and resources wasted when inflation encourages people to reduce money holdings is called…

Shoeleather Cost

The costs associated with changing prices(printing new menu’s , advertising, etc)

Menu Costs

To avoid menu costs, prices () rarely. Inflation throws a wrench in this by causing these relative prices to () far more than they usually would.

Change, Vary

An example of how inflation discourages saving is through (), which are the profits made by selling an asset for more than it’s purchase price.

Capital Gains

An example of inflation discouraging saving is that income taxes treat () earned on savings as income, despite it being there to compensate for inflation.

Nominal Interest

An issue with inflation is how it creates () and () among the people.

Confusion, Inconvenience

An inflation issue is that it can arbitrarily () wealth to people, making it so they can pay back loans far easier than the should.

Redistribute

A belief that deflation would be good, since it would reduce shoeleather costs and encourage people to hold onto money.

Friedman Rule