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. For each of the following statements, determine the associated cost. Be careful! Some of the statements may not go into any of the categories because two categories are missing.

Items (7 items) (Drag and drop into the appropriate area below)

• Jim is reluctant to sell his stocks at the end of the year.

• 
  

• The CEO of GM worries that his revenue received in the future won’t cover the expenses he incurs today.

• 
  

• Kallie is taking more trips to the ATM now than in the past.

• 
  

• John thinks his new salary in NYC will increase his standard of living.

• 
  

• Carson is angry because the price of donuts increased from $1 to $2 since last week.

• 
  

• Your grandmother’s savings account pays 2% interest, but inflation is 5%.

• 
  

• A jeweler observes the price of gold rise and wonders if there is a shortage of gold.

Categories

• Shoe-leather costs

Drag and drop here

• Money illusion

Drag and drop here

• Menu costs

Drag and drop here

• Wealth redistribut'n

Drag and drop here

• Price confusion

Drag and drop here

Answer 1

Kallie is taking more trips to the ATM now than in the past Shoes - leather cost is the time and effort people spend to go the bank because they hold less cash at hand because of inflation. Money illusion John thinks his new salary in NYC will increase his standard of living Menu costs Carson is angry that the price of donuts increased from $ 1 to $ 2 since last week. wealth your grandmother�s savings account pays 2% interest, but inflation is 5 %. Price confusion. The Jeweler observes the price of gold rise and wonders if there is a shortage.