Menu costs of inflation are costs arising from
A)the failure to fully index the tax system for inflation.
B)attempts by households and firms to avoid paying an inflation tax on money balances.
C)the need for firms to change prices during times of inflation.
D)high nominal interest rates.

Question

Quizplus · Accepted Answer

Menu costs of inflation refer to the costs incurred by firms when they change their prices in response to inflation. These costs include the printing of new price lists, the reprogramming of cash registers and computers, and the time and effort required to make these changes. Therefore, option C is the correct answer. Option A refers to a different concept known as bracket creep, while option B refers to the cost of holding money during times of inflation, also known as the inflation tax. Option D is not related to menu costs.

Menu Costs of Inflation Are Costs Arising from