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Measuring the Econo16

Measuring the Econo16 - Measuring the Economy Expected...

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Unformatted text preview: Measuring the Economy Expected Inflation The major effects of expected inflation are simply inconveniences. If inflation is expected, people are less likely to hold cash since, over time, this money looses value due to inflation. Instead, people will put cash into interest earning investments to combat the effects of inflation. This can be a bit of a nuisance, since people need money to take care of business. Thus, if consumers expect inflation, they are likely to hold less cash and travel more often to the bank to withdrawal a smaller amount of money. This phenomenon of changed consumer patterns is called the shoeleather cost of inflation, referring to the fact that more frequent trips to the bank will lessen the time it takes to wear out a pair of shoes. The second major inconvenient effect of expected inflation strikes companies that print the prices of their goods and services. If expected inflation makes the real value of the dollar fall over time, firms need to increase their nominal...
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