Below is a list of potential problems that inflation might cause. Use the space on the...

Below is a list of potential problems that inflation might cause. Use the space on the left to name each of these with the terms used in chapter 8.
- ___________ Lenders and workers are reluctant to help firms produce output because the real value of future dollar payoffs is unclear.
- ___________ Workers make decisions on the basis of nominal rather than real wage changes.
- ____________ Unexpected inflation reduces the real value of loan repayments.
- ____________ Firms cannot distinguish whether there is a change in the relative price of their good or a change in the overall price level.
- _____________Restaurants need to spend resources to alter the prices on their menus.
- _____________Individuals own stock shares for many years and then sell them and are required to pay taxes on the nominal capital gain.
- ______________People leave work early to shop before inflation changes prices

Expert Solution

Below is a list of potential problems that inflation might cause. Use the space on the left to name each of these with the terms used in chapter 8.
- (Future price level uncertainty)Lenders and workers are reluctant to help firms produce output because the real value of future dollar payoffs is unclear.
- (Money illusion)Workers make decisions on the basis of nominal rather than real wage changes.
- (wealth redistribution)Unexpected inflation reduces the real value of loan repayments.
- ( price confusion)Firms cannot distinguish whether there is a change in the relative price of their good or a change in the overall price level.
- (Menu cost)Restaurants need to spend resources to alter the prices on their menus.
- ( tax distortion)Individuals own stock shares for many years and then sell them and are required to pay taxes on the nominal capital gain.
- (Shoe- leather - cost)People leave work early to shop before inflation changes prices

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