The costs of inflation

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

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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 countrys 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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The costs of inflation - debtors get to repay their debt...

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