Which of the following would be a redistributive cost of inflation?
A) Additional trips to the bank
B) Reprinting menus and price tags
C) Comparison shopping
D) The real amount paid back for a loan compared to the expected real payments
E) The actual nominal rate on a loan compared to the expected nominal rate

Question

Quizplus · Accepted Answer

The real amount paid back for a loan compared to the expected real payments is a redistributive cost of inflation because it affects lenders and borrowers differently. If inflation is higher than expected, borrowers benefit because they are paying back their loans with less valuable currency. However, lenders lose out because they are receiving less valuable currency than they expected. This redistribution of wealth from lenders to borrowers is a cost of inflation. None of the other choices represent redistributive costs of inflation.

Which of the Following Would Be a Redistributive Cost of Inflation