The costs of inflation

The costs of inflation - ← debtors get to repay their...

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20/03/2009 09:59:00 The costs of inflation 1. Shoeleather cost- cost of trying to insulate/protect yourself from inflation.  Rsources are wasted when inflation encourages people to reduce their money. Includes  the time and transaction costs of more frequent bank withdrawals 2.menu costs: the costs of changing prices 3. misallocation of resources firm relative-price variability.  doubling money supply causes all nominal prices to double: what happens to  relative prices?  There are no changes . 5. Tax distortions:  inflation makes nominal income grow faster than real  income. No inflation adjustment a special cost of unexpeted inflation
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Unformatted text preview: ← debtors get to repay their debt with dollars that arent worth as much, ie. Student loans. ← high inflation is more variable and less predictable low inflation ← ← closed Vs. Open economies ← closed- does not interact with other economies in the world. • Y= C + I + G ← Open- interacts freely with other ecnomies in the world. • Y= C + I + G +NX • NX=X- IM ← NX measures the imbalance in a country’s trade in goods and services. ← Trade deficit: an excess of imports over exports ← Trade surplus: an excess of exports over imports ← ← IF US net exports 20/03/2009 09:59:00 ← 20/03/2009 09:59:00 ←...
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This note was uploaded on 04/01/2009 for the course EC 102 taught by Professor Zagorsky during the Spring '08 term at BU.

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The costs of inflation - ← debtors get to repay their...

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