Question

Inflation imposes many costs on the economy: shoe-leather costs, money illusion, menu costs, wealth redistribution, price confusion, future price level uncertainty, and tax distortions.

a. True
b. False

Answer 1

Answer: True

Step-by-step explanation:

Inflation refers to the decline in the purchasing power of a currency over time. Inflation creates shoe leather cost which refers to the cost of time and.the effort by which individuals spend so as to mitigate the effects of inflation, like holding fewer cash.

Also, inflation creates money illusion as there's reduction in the value of money that one holds. Inflation creates menu costs as prices goes up. It also brings about wealth redistribution, price confusion, future price level uncertainty, and tax distortions.

Therefore, the correct option is True.