Question

at least six sentences What do you think are some of the costs of inflation?

Answer 1

Inflation is the increase and sustained increase in the general price level. It is a marjor problem for all the economies, but a moderate inflation is always welcomed. Infation causes problems in terms of lowering the gains from future investments, profits, pension funds thus making it underisrable investment opportunities. on the macroeconomic front, a high inflation causes a problem to adjust the policy measures which want to attain a sustained growth path. on the political front, a high infaltion rate lowers their chance of winning the next election. On the front of consumers, a higher inflaiton will casue them to ask them for higher wages since they can not buy the same consumer bundle at the old price.

costs of infaltion can be:

Menu Cost: cost of changing menu's too fast since prices are increasing at a higher rate.

shoe leather cost: The cost of depositing money in your account since the value of money decreases with an increase in inflaiton.