AP Macroeconomics / Unit 2: Economic Indicators and the Business Cycle
2.5 Costs of Inflation
Notes
Unexpected inflation hurts lenders, savers and people on fixed incomes; it helps borrowers.
- Shoe-leather and menu costs.
- Deflation can increase the real burden of debt.
Practice
Unexpected inflation helps:
They repay with cheaper money.
Restaurants reprinting menus because of rising prices is a:
Cost of changing prices.
Fixed-income retirees are hurt by inflation because:
Same dollars buy less.
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