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5 November, 01:36

For each of the following statements about inflation, indicate which function of money inflation is hindering. (Store of Value, Unit of Account, Medium of Exchange) a. Inflation erodes money's purchasing power. b. Inflation causes menu costs. c. In some countries with hyperinflation, prices are posted in terms of U. S. dollars rather than the local currency, even though the local currency is still used to purchase the good.

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  1. 5 November, 03:12
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    (a.) Inflation erodes money's purchasing power ⇒ Store of Value is the function of money that is being hindered by the inflation.

    Reason: Money value is inversely proportional to the inflation rate. i. e. If Inflation increase there will be a decrease in money value.

    (b.) Inflation causes menu costs ⇒ Unit of Account is the function of money that is being hindered by the inflation.

    Reason: Here the seller will change the costs due to the abrupt change in

    prices.

    (c.) In some countries with hyperinflation, prices are posted in terms of U. S. dollars rather than the local currency, even though the local currency is still used to purchase the good ⇒ Unit of Account is the function of money that is being hindered by the inflation.

    Reason: Due to a vast difference in standard of units and their respective currencies, here inflation will further add to the problem as it'll become more difficult to measure the units of currency.
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