Question

Rajiv manages a grocery store in a country experiencing a high rate of inflation. He is paid in cash twice per month. On payday, he immediately goes out and buys all the goods he will need over the next two weeks in order to prevent the money in his wallet from losing value. What he can't spend, he converts into a more stable foreign currency for a steep fee. This is an example of the of inflation.

Answer 1

This is an example of shoe leather cost of inflation.

Step-by-step explanation:

The term inflation refers to the situation of continuous rise in the general price level.

The shoe leather costs refers to the cost and energy involved in the practices that people adopt in order to reduce the effect of inflation on their cash holdings, in case of high inflation.

When there is high inflation people do not prefer to hold high amount of cash as the value of cash corrodes because of rise in price level.