Shoeleather cost refers to:

a. resources used to maintain lower money holdings when inflation is high.

b. the distortion in resource allocation created by distortions in relative prices due to inflation.

c. the tendency to expend more effort searching for the lowest price when inflation is high.

d. the cost of more frequent price changes induced by higher inflation.

Question

Hess

Business

2 September, 22:34

Shoeleather cost refers to:

a. resources used to maintain lower money holdings when inflation is high.

b. the distortion in resource allocation created by distortions in relative prices due to inflation.

c. the tendency to expend more effort searching for the lowest price when inflation is high.

d. the cost of more frequent price changes induced by higher inflation.

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Answers (1)

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Ayaan Cooper · Answer 1

Answer: Option a

Explanation: In simple words, the value of effort and time (or economic cost of effort and time) which individuals spend by keeping less money to offset the inflation tax they pay on cash holdings whenever higher inflation occurs is called shoe leather cost.

Increased cost of shoe-leather is one of the inflationary impacts. In a time of high inflation, individuals are discouraged from keeping large sums of money because their worth is rapidly deteriorating compared to the economy's increasing prices.