Which of the following is NOT a significant cost of inflation?
A) shoeleather costs associated with reduced money holdings
B) menu costs associated with more frequent adjustment of prices
C) increased stability of relative prices
D) unintended changes in tax liabilities

Question

Quizplus · Accepted Answer

Increased stability of relative prices is considered a benefit of inflation, not a cost. A moderate level of inflation can help to ensure that relative prices (the prices of different goods and services relative to each other) remain stable over time, facilitating commercial transactions and economic activity. However, other costs associated with inflation include shoeleather costs (the costs of reduced money holdings), menu costs (the costs of more frequent adjustment of prices), and unintended changes in tax liabilities.

Which of the Following Is NOT a Significant Cost of Inflation