Question:

Economics question, inflation costs?

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which of the following costs matter if actual inflation and expected inflation are the same?

a. menu costs ----- (has to be)

b. inflation tax-----------(not sure)

c. shoeleather costs. -------(not sure)

d. all above

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  1. Menu costs refers to costs which firms incurr in updating new pricing, inflation tax means the real cost to individuals' purchasing power which is inevitable regardless of anticpated or unanticipated inflation, shoeleather costs is the cost of inconvenience which individuals will make more trips to the bank to withdraw money, since the opportunity of holding money become higher due to inflation. Hence, we may conclude that all the above costs are relevant.

    Therefore, ans: d

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