The Menu Cost of Inflation Arises Since

question 28

Multiple Choice

The menu cost of inflation arises since

• A)people hold less currency if inflation is positive and thus they take more trips to the bank
• B)the central bank eventually has to restrict money supply and this causes an increase in the unemployment rate
• C)lenders are less likely to give out loans and this has a negative impact on economic activity
• D)resources have to be devoted to marking up prices and changing vending machines and cash registers
• E)real wages and real money holdings lose purchasing power

---

Definitions:

Nominal Interest Rate

The interest rate before adjustments for inflation, representing the rate of interest charged by banks or paid on investments.

Expected Rate

The anticipated return on an investment over a specific period, often used for forecasting.

Inflation

A rise in the general price levels of goods and services in an economy over a period of time.

Labor Force

The total number of people who are of working age (typically 16 years and over), capable of, and seeking employment.