Costs of inflation (determinant)

Question 1

Costs of inflation

Answer 1

• Shoe leather costs - the cost of time spent finding where to put money to attract the best rate of interest
• Inflationary noise – confusion caused by inflation (are products better now ?)
• Shrinkflation – prices stay the same, products get smaller.
• Menu costs - the cost of updating price lists
• Administrative costs – costs of businesses for negotiating (e.g. suppliers, workers)