2.5 Cost Of Inflation Flashcards
Who are hurt by inflation? / unanticipated inflation
Lenders: people who lend money( at fixed interest rates.)
People w/ fixed incomes
Savers
Who is helped by inflation? / unanticipated inflation
Borrowers: people who borrow money
A business where the price of the product increases faster than the price of resources
Nominal Wage
Wage measured by dollar rather than purchasing power
Real Wage
Wage adjusted for inflation
Menu Costs
Costs money to change listed prices
Businesses must update menus, signs, etc.
Cost of inflation
Shoe Leather Costs
The costs of transactions increase
People reduce their real money holdings so they must spend time and effort making additional trips to the bank
Cost of Inflation
Unit of Account Costs
Money doesn’t reliably measure the value of goods/services
Leads to less efficient use of resources b/c of uncertainty caused by changes in currency value.
Cost of Inflation
