Chapter 8, Problem 10P

To determine

To explain:

The mentioned examples with whether inflation creating winner and losers at no net cost to the economy or imposing a net cost to the economy.

Concept Introduction:

Inflation: Inflation decreases the currency’s value and raise the prices of goods and services in the economy.

Inflation causes few economic costs which are listed as follows:

• Shoe-Leather Cost: With the rise in inflation and fall in value of money, people start to reduce the money they hold. This involves a cost which is known as shoe-leather cost.
• Menu Cost: With the rise in inflation, the price of every good and service in the economy also rises. The producers have to change the prices listed on their products and services. This involves a cost which is known as menu cost.
• Unit-of-Account Cost: With the rise in inflation, the value of currency falls. This involves a cost which is known as unit-of-account cost.