Brian is paid monthly via a direct deposit into an interest-bearing checking account. He withdraws $500 of this pay in cash at the beginning of the month to spend throughout it. However, due to recent inflation, Brian decides to instead withdraw $125 from the bank every week, so that his money can earn interest for as long as possible. The time and energy Brian spends visiting the bank more often would be classified as a:
A) shoe-leather cost.
B) menu cost.
C) transactions cost.
D) tax distortion.

Question

Quizplus · Accepted Answer

Brian is incurring extra time and energy (and possibly transportation costs) to visit the bank more frequently to withdraw smaller amounts of cash. This is known as a shoe-leather cost, which is a type of cost that arises due to inflation and encourages people to reduce their cash holdings by making more frequent withdrawals from their bank accounts.

Brian Is Paid Monthly Via a Direct Deposit into an Interest-Bearing