1. For each of the following separate situations, determine the associated problem of inflation. (i) Shoe-leather...

1. For each of the following separate situations, determine the associated problem of inflation. (i) Shoe-leather cost; (ii) money illusion; (iii) menu costs; (iv) future price level uncertainty; (v) wealth redistribution; (vi) price confusion; or (vii) tax distortions.

(a) John is the owner of a grocery store. He raised prices and he needs to reprint the advertisements again. (iii) menu costs

(b) Mary wastes so much time to deposit money in a bank. (i) Shoe-leather cost

(c) Peter wants to buy a stock of an oil company because oil price keeps rising. (iv) future price level uncertainty

(d) Katie is deciding whether to design and make new toys for sales. Yet she is concerned that the selling price of the toys may not cover the expenses. (iv) future price level uncertainty

(e) Alfred is reluctant to relocate to Detroit because he will earn a lower wage there. (ii) money illusion

(f) Debra is unwilling to lend money to Bob because Debra believed that the interest rate she receives is too low. (v) wealth redistribution

(g) George’s neighbor wanted to buy George’s house for a very high price. George wanted to sell it and he could make a huge gain, but he finally declined to sell it. (vi) price confusion

(h) Susan received a pay raise, and she believes that she is now wealthier. (ii) money illusion

Could you check the answers?

Expert Solution

Rahul Sunny answered 2 years ago

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